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S. Hrg. 111-1214
LEGISLATIVE HEARING ON S. 1733, CLEAN
ENERGY JOBS AND AMERICAN POWER ACT
HEARING
BEFORE THE
COMMITTEE ON
ENVIRONMENT AND PUBLIC WORKS
UNITED STATES SENATE
ONE HUNDRED ELEVENTH CONGRESS
FIRST SESSION
OCTOBER 27, 2009
Printed for the use of the Committee on Environment and Public Works
Available via the World Wide Web: http://www.gpo.gov/fdsys
S. Hrg. 111-1214
LEGISLATIVE HEARING ON S. 1733, CLEAN
ENERGY JOBS AND AMERICAN POWER ACT
HEARING
BEFORE THE
COMMITTEE ON
ENVIRONMENT AND PUBLIC WORKS
UNITED STATES SENATE
ONE HUNDRED ELEVENTH CONGRESS
FIRST SESSION
OCTOBER 27, 2009
Printed for the use of the Committee on Environment and Public Works
Available via the World Wide Web: http://www.gpo.gov/fdsys
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COMMITTEE ON ENVIRONMENT AND PUBLIC WORKS
ONE HUNDRED ELEVENTH CONGRESS
FIRST SESSION
BARBARA BOXER, California, Chairman
MAX BAUCUS, Montana JAMES M. INHOFE, Oklahoma
THOMAS R. CARPER, Delaware GEORGE V. VOINOVICH, Ohio
FRANK R. LAUTENBERG, New Jersey DAVID VITTER, Louisiana
BENJAMIN L. CARDIN, Maryland JOHN BARRASSO, Wyoming
BERNARD SANDERS, Vermont MIKE CRAPO, Idaho
AMY KLOBUCHAR, Minnesota CHRISTOPHER S. BOND, Missouri
SHELDON WHITEHOUSE, Rhode Island LAMAR ALEXANDER, Tennessee
TOM UDALL, New Mexico
JEFF MERKLEY, Oregon
KIRSTEN GILLIBRAND, New York
ARLEN SPECTER, Pennsylvania
Bettina Poirier, Staff Director
Ruth Van Mark, Minority Staff Director
(II)
CONTENTS
Page
OCTOBER 27, 2009
OPENING STATEMENTS
Boxer, Hon. Barbara, U.S. Senator from the State of California 1
Inhofe, Hon. James M., U.S. Senator from the State of Oklahoma 3
Kerry, Hon. John, U.S. Senator from the State of Massachusetts 5
Baucus, Hon. Max, U.S. Senator from the State of Montana 14
Alexander, Hon. Lamar, U.S. Senator from the State of Tennessee 15
Klobuchar, Hon. Amy, U.S. Senator from the State of Minnesota 17
Bond, Hon. Christopher S., U.S. Senator from the State of Missouri 20
Specter, Hon. Arlen, U.S. Senator from the State of Pennsylvania 21
Crapo, Hon. Mike, U.S. Senator from the State of Idaho 22
Udall, Hon. Tom, U.S. Senator from the State of New Mexico 24
Voinovich, Hon. George V., U.S. Senator from the State of Ohio 25
Lautenberg, Hon. Frank R., U.S. Senator from the State of New Jersey 87
Barrasso, Hon. John, U.S. Senator from the State of Wyoming 89
Merkley, Hon. Jeff, U.S. Senator from the State of Oregon 90
Vitter, Hon. David, U.S. Senator from the State of Louisiana 91
Whitehouse, Hon. Sheldon, U.S. Senator from the State of Rhode Island 94
Sanders, Hon. Bernard, U.S. Senator from the State of Vermont 96
Cardin, Hon. Benjamin L., U.S. Senator from the State of Maryland 97
Gillibrand, Hon. Kirsten, U.S. Senator from the State of New York, prepared
statement 267
WITNESSES
Chu, Hon. Steven, Secretary, U.S. Department of Energy
Prepared statement
Response to an additional question from Senator Lautenberg
Responses to additional questions from:
Senator Inhofe
Senator Voinovich
Senator Vitter
Response to an additional question from Senator Barrasso
Responses to additional questions from Senator Alexander
LaHood, Hon. Ray, Secretary, U.S. Department of Transportation
Prepared statement
Responses to additional questions from Senator Inhofe
Response to an additional question from Senator Barrasso
Salazar, Hon. Ken, Secretary, U.S. Department of the Interior
Prepared statement
Responses to additional questions from:
Senator Inhofe
Senator Barrasso
Jackson, Hon. Lisa P., Administrator, U.S. Environmental Protection Agency .
Prepared statement
Responses to additional questions from:
Senator Udall
Senator Inhofe
Senator Voinovich
Senator Vitter
Senator Barrasso
Senator Alexander
144
146
149
150
155
159
161
162
165
167
174
180
181
184
189
194
196
198
200
201
220
222
224
225
(III)
IV
Page
Wellinghoff, Hon. Jon, Chairman, Federal Energy Regulatory Commission 228
Prepared statement 230
Responses to additional questions from:
Senator Whitehouse 239
Senator Udall 244
ADDITIONAL MATERIAL
Statement of Shaun Donovan, Secretary, Housing and Urban Development .... 269
Statement of Gary F. Locke, Secretary of Commerce 274
Testimony of Americans for Tax Reform 279
Testimony of the Gas Technology Institute 283
Report from the Center for American Progress: The Economic Benefits of
Investing in Clean Energy 295
LEGISLATIVE HEARING ON S. 1733, CLEAN
ENERGY JOBS AND AMERICAN POWER ACT
TUESDAY, OCTOBER 27, 2009
U.S. Senate,
Committee on Environment and Public Works,
Washington, DC.
The committee met, pursuant to notice, at 9:33 a.m. in room 406,
Dirksen Senate Office Building, Hon. Barbara Boxer (chair of the
committee) presiding.
Present: Senators Boxer, Inhofe, Baucus, Lautenberg, Cardin,
Sanders, Klobuchar, Whitehouse, Udall, Merkley, Gillibrand, Spec-
ter, Voinovich, Vitter, Barrasso, Crapo, Alexander, and Bond.
OPENING STATEMENT OF HON. BARBARA BOXER,
U.S. SENATOR FROM THE STATE OF CALIFORNIA
Senator Boxer. The committee will come to order.
Before I start my 5-minute statement, everyone is going to have
5 minutes, and we are doing the early bird rule. Senator Inhofe
and I have agreed that if we are in the middle of a panel and a
Senator arrives, we are going to just have them have to delay their
opening statement so we can keep the flow of this going. We do ex-
pect a very good attendance on both sides of the aisle.
Senators, this is the first legislative hearing on S. 1733, the
Clean Energy Jobs and American Power Act. Over the next 3 days,
we will hear from 54 witnesses on 9 separate panels. Today I want
to welcome my partner in writing this bill, Senator John Kerry,
and our distinguished Obama administration witnesses. I greatly
appreciate the President’s strong leadership on this issue.
As promised, the Chairman’s mark was made public on Friday,
and we released and posted EPA’s economic analysis of the bill.
Committee rules provide that this document be circulated 3 days
before the markup. We have done this at least 10 days before the
markup.
The Kerry-Boxer bill was based on the successful legislation in
the House, the Waxman-Markey bill. Our bill is straightforward, as
you can see on the chart. After outlining the findings, goals and
targets, Division A lays out a series of authorizations, and Division
B sets up the pollution reduction and investment program.
EPA’s economic modeling found that the Kerry-Boxer bill will
carry modest costs for America’s families, the overall impact being
22 cents to 30 cents a day. Let’s talk about that for a minute. What
will America’s families get for 30 cents a day?
For 30 cents a day, we will put America in control of our own
energy future and take a stand for home grown American energy,
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2
rather than foreign oil from countries who don’t like us. For 30
cents a day, we will protect our kids from dangerous pollution. For
30 cents a day, we will send a signal that sparks billions of dollars
of private investment in job creation. For 30 cents a day, we will
be the world’s leader in clean energy technology.
No climate bill has ever had this level of review, and the Obama
administration stands behind this analysis. EPA spent 5 weeks
analyzing the Waxman-Markey bill and another 2 weeks analyzing
our version. Scientists in the Obama and Bush administrations and
the National Academy of Sciences and the U.N. IPCC tell us that
we have a narrow window of time in which to avert the ravages
of global warming. They tell us about frequent and intense storms,
wildfires in the west, heat waves across the Nation, increased
droughts and flooding, threats to agriculture, global conflict, refu-
gees and food shortages.
In 2005, Hurricane Katrina took an estimated 1,700 lives, dis-
placed a million people and cost well over $100 billion. Four years
later, there is still suffering, and it will take billions to protect the
coast in that region. Katrina provides a window into the kind of
world we can expect if we fail to act.
S. 1733 is our best insurance against a dangerous future. It is
a responsible approach that sets attainable goals for gradual reduc-
tions in carbon emissions. And it protects consumers, businesses
and workers as we move toward clean energy.
Let me give the warmest of thank yous to John Kerry and his
staff, as well as to all majority members of this committee and
their dedicated staffs. Their hard work is reflected in the Chair-
man’s mark.
I also want to thank Senator Carper for agreeing to take the
helm of the Coal Working Group and for working with Senators on
and off the committee to produce a positive outcome. Of course, I
am disappointed that since John Warner retired, I don’t have a Re-
publican partner on the committee. But I am appreciative for the
productive conversations I have had with Senator Alexander about
nuclear energy and for the wide ranging conversations and meet-
ings I had with Senator Voinovich and his staff.
We have been helped by environmental organizations, business
and workers, religious experts, and I thank all of them.
Ladies and gentlemen, here is where we are. Since the Supreme
Court ruled that greenhouse gas pollution is covered under the
Clean Air Act, the EPA must move forward to meet its responsibil-
ities under the law. Our bill is the best way to proceed. It provides
flexibility to businesses and powerful incentives to drive innova-
tion. It helps consumers, workers, agriculture, transportation, en-
ergy efficiency, wildlife. It helps cities and counties. It will launch
an economic transformation, and it is deficit neutral, and may even
have a surplus at the end of the day.
Over the past four decades, this committee has been at the cen-
ter of our Nation’s landmark environmental laws. They were writ-
ten right here in this room. And those who sat in these chairs be-
fore us never ran from a challenge. Global warming is our chal-
lenge now, and I am very pleased that today is an important mile-
stone on our road to action.
3
Members of the committee, I am going to call on Senator Inhofe.
We are then going to hear from Senator Kerry, who must go to a
committee hearing. And then we are going to go with the early bird
rule and we will let all of you know your place on that.
Senator Inhofe.
OPENING STATEMENT OF HON. JAMES M. INHOFE,
U.S. SENATOR FROM THE STATE OF OKLAHOMA
Senator Inhofe. Thank you, Madam Chairman. We are here
today to discuss a 923-page bill to fundamentally redesign our $14
trillion economy. The bill is no doubt ambitious, but it is also ex-
tremely costly. I won’t argue on the 30 cents a day; it is going to
be very similar to the other efforts on cap-and-trade. It is going to
be very, very expensive.
I do want to congratulate you, Madam Chairman, because I
watched your YouTube this morning. It is the first one I have seen.
And the fact that you are using the term global warming again is —
I appreciate that. People have been running from that term ever
since we went out of that natural warming cycle about 9 years ago.
Now, I won’t go into a lot of details on the request that we have
had for a narrative on this thing from the Environmental Protec-
tion Agency. I will have some questions for the Director. But I will
let Senator Voinovich talk about that, since we have made these
requests together over a period of time.
Now, getting the analysis will help cut through a lot of the catch
words. It will bring into focus the words of Representative John
Dingell from Michigan, who said cap-and-trade is “a tax, and a
great big one.” The Kerry-Boxer is a tax, and it will mean more
economic pain and suffering and fewer jobs.
When President Obama signed the $780 billion stimulus bill into
law, he promised to save or create 3.5 million jobs. Since then, we
have lost 3 million jobs. And the number keeps growing. Today the
Administration will argue that cap-and-trade creates jobs. But it
won’t.
The Senate Energy Committee recently had a hearing about the
cost of cap-and-trade. Here are some of the headlines that follow.
The Washington Post: “Cap-and-Trade Will Slow the Economy,
CBO Chief Says.” The Wall Street Journal: “Congressional Budget
Chief Says Climate Bill Would Cost Jobs.” In the Guardian: “The
Obama Climate Change Bill Would Hurt the U.S. Economy.”
Let us recount a telling moment of that hearing. That is when
Senator Sessions asked the Government witnesses — now, we have
some overlap here, Ms. Jackson, you are one of them; they had the
CBO, EPA, EIA and the CRS. He asked them whether anyone dis-
agreed with the finding that the net effect of cap-and-trade would
be a reduction in jobs. None did. Cap-and-trade supporters ac-
knowledge job loss. They acknowledge the transition to a green
economy. I am not sure what that means. The CBO director pro-
vided some help. They said, transition will be painful. The victims
of cap-and-trade can’t just move on and get new green jobs. The
transition will mean leaving high paying jobs, moving away from
hometowns and significant reductions in lifetime earnings. Now,
that’s the CBO that stated that.
4
Now the majority will say that Kerry-Boxer has provisions to
soften the transition. This raises two points. First, it is an implicit
acknowledgment that the bill will destroy jobs. We have a provision
in the bill that says we are going to try to have worker training,
because people will be losing jobs.
Second, I am sure the worker in the cement plant, when he loses
his job, won’t find it very much consolation in the green welfare
programs. Even the job killing impacts of cap-and-trade become
clear. We now hear of a grand climate compromise. It entails great-
er support for nuclear plants and more offshore and gas drilling.
These are sensible policy goals. But why attach them to an energy
tax that destroys jobs? And can you really try to drive fossil fuels
into extinction on one hand and increase them on the other? It
doesn’t work.
This apparent compromise will also entail a massive expansion
of Government bureaucracy. Senator Webb, a Democrat from Vir-
ginia, compared it to “the old Soviet Union.” Consider that in 2003,
the Climate Stewardship Act — this is interesting, because we have
addressed this five different times in the Senate. That had 58
pages. The next version in 2005 had 63 pages. The Lieberman-War-
ner bill had 344 pages. And the Kerry-Boxer has 923 pages. Wax-
man-Markey was 1,428 pages.
So if we are talking about a deal, let’s focus on nuclear and oil
and gas drilling; keep taxes and bureaucracy out of it.
In his speech last week, President Obama dismissed opponents
of cap-and-trade as cynical and pessimistic. I wonder if that applies
to the 44 Democrats who voted against the Waxman-Markey bill.
I think differently. They object to a policy that would destroy jobs
and radically increase the size and scope of Government.
I think if you just look at this in light of the Kyoto Treaty, then
the 2003 bill, the 2005 bill, the 2008 bill, the one thing they have
in common is cap-and-trade is very expensive. We are talking about
somewhere between $300 billion and $400 billion a year. That is
something the American people can’t tolerate, and I don’t believe
they will.
Thank you, Madam Chairman.
[The prepared statement of Senator Inhofe follows:]
Statement of Hon. James M. Inhofe,
U.S. Senator from the State of Oklahoma
We are here today to discuss a 923-page bill to fundamentally redesign our
$14 trillion economy. The bill is no doubt ambitious, but it’s also extremely costly
and ineffective. It is a massive new tax on consumers that will have virtually no
effect on climate.
This bill necessarily will raise the price of gasoline, electricity, food, and just
about everything else. So we need a comprehensive economic analysis to understand
the bill’s impacts. But we don’t have it. We have instead a 38-page narrative from
the Environmental Protection Agency, the gist of which is, “This bill is a lot like
Waxman-Markey, so go see our analysis of Waxman-Markey.” I did read the anal-
ysis of Waxman-Markey. It’s flawed and incomplete. So what do we have here? Not
much.
While I have serious problems with EPA’s analysis of Waxman-Markey and its
38-page “meta-analysis” of Kerry-Boxer, the latter was not entirely EPA’s fault. In
its drive to ram S. 1733 through the legislative process, the majority didn’t provide
EPA enough time to do a serious analysis. Why would the majority ram through
a 923-page bill to overturn the existing economic order? The question answers itself.
The public deserves more than just a 38-page description of how much S. 1733 re-
sembles another energy tax passed by the House.
5
We were told EPA’s work contains “everything that you ever wanted to know.”
Yet EPA glosses over and minimizes key issues. Moreover, EPA’s analysis of Wax-
man-Markey lacks the real world assumptions that Senator Voinovich and I asked
for in July. EPA rejected our request — we were told to go and find rigorous analysis
somewhere else. At this point, I hope we can work with EPA to sort this out, or
else our ability to have a markup will be in jeopardy.
Getting the analysis will help us cut through the catchwords. It will bring into
focus the words of Representative John Dingell (D-Mich.), who said cap-and-trade
is “a tax, and a great big one.” Kerry-Boxer is a tax, and it will mean more economic
pain and suffering and fewer jobs.
When President Obama signed the $787 billion stimulus bill into law, he prom-
ised to “save or create” 3.5 million jobs. Since then, we have lost 3 million jobs, and
the number keeps growing. Today the Administration will argue that cap-and-trade
creates jobs. With all due respect, there is a credibility problem here.
The Senate Energy Committee recently had a hearing about the costs of cap-and-
trade. Here are some of the headlines that followed — the Washington Post: “Cap-
and-Trade Would Slow Economy, CBO Chief Says”; the Wall Street Journal: “Con-
gressional Budget Chief Says Climate Bill Would Cost Jobs”; and the Guardian:
“Obama climate change bill could hurt U.S. economy, panel told.”
Let me recount a telling moment in that hearing. Senator Sessions asked the Gov-
ernment witnesses — and they were CBO, EPA, EIA, and CRS — whether anyone dis-
agreed with the finding that the net effect of cap-and-trade would be a reduction
in jobs. None did.
Cap-and-trade supporters acknowledge some job loss. They acknowledge a “transi-
tion” to the green economy. I’m not sure what that means. The CBO director pro-
vided some help. He said the “transition” will be painful — the victims of cap-and-
trade can’t just move on and get a new green job. The “transition” will mean leaving
high paying jobs, moving away from hometowns, and “significant reductions in life-
time earnings.”
Now the majority will say Kerry-Boxer has provisions to soften the “transition.”
This raises two points: first, it’s an implicit acknowledgement that the bill will de-
stroy jobs; and second, I’m sure the worker at a cement plant, when he loses his
job, won’t find much consolation in green welfare programs.
Even as the job killing impacts of cap-and-trade become clear, we now hear of a
grand climate compromise. It entails greater support for new nuclear power plants
and more offshore oil and gas drilling. These are sensible policy goals, but why at-
tach them to an energy tax that destroys jobs? And can you really try to drive fossil
fuels to extinction on the one hand and increase them on the other?
This apparent compromise will also entail a massive expansion of Government bu-
reaucracy. Senator Webb (D-Va.) compared it to “the old Soviet Union.” Consider
that in 2003, the Climate Stewardship Act was 58 pages; the updated version in
2005 was 63 pages; the Lieberman- Warner bill in 2008 was 344 pages; in 2009,
Kerry-Boxer is 923 pages and Waxman-Markey is 1,428 pages. So if we’re talking
about a deal, let’s focus on nuclear and oil and gas drilling; keep taxes and bureauc-
racy out of it.
In his speech last week, President Obama dismissed opponents of cap-and-trade
as “cynical” and “pessimistic.” I wonder if that applies to the 44 Democrats who
voted against Waxman-Markey. I think differently: they object to a policy that will
destroy jobs and radically increase the size and scope of Government.
This is about prudence and common sense. And it’s about a fundamental dif-
ference in vision for the country. We have the approach to tax and destroy versus
the approach to expand and create. The American people prefer the latter. And so
do I. Thank you.
Senator Boxer. Thank you very much, Senator.
Our first witness is the author of the Kerry-Boxer bill, and we
are very happy you could be here, Senator. We know you have
many other obligations, but we will be very interested in hearing
what you have to say in as long as you need to take to say it.
OPENING STATEMENT OF HON. JOHN KERRY,
U.S. SENATOR FROM THE STATE OF MASSACHUSETTS
Senator Kerry. Well, Madam Chairman, thank you very, very
much. Thanks for the privilege of appearing before this committee,
Senator Inhofe, and all the members of the committee, many of
6
whom I have met with individuals talking about this, and all of
whom I really want to sit down with and talk about this. Because
we need to find the path forward.
I listened carefully, Senator Inhofe, to your comments, and I will
address some of them as I go along, and I would like to.
But I want to thank Chairman Boxer, first of all, for her pas-
sionate, determined, inspirational leadership on this issue. She has
been a gracious and invaluable collaborator in this effort. I am per-
sonally grateful to her, as are many people, for her effort to push
this along. And you may disagree with her, but she is determined
to try to put America in the right place on this issue. And I hope
in the course of these hearings we will all understand how we are
doing that.
Today we begin the formal legislative process to lead the world
in rolling back the urgent threat of climate change. I believe, and
the vast majority, overwhelming numbers of scientists and peer re-
viewed studies across the globe, leaders of countries across the
globe, presidents, prime ministers, finance ministers, environment
ministers, all across the planet, have all determined that we need
to move forward to deal with climate change, and that in doing so,
Senator Inhofe, we will actually improve every sector of our energy
economy, from coal to nuclear, to wind and solar. We will take cru-
cial strides toward energy independence, which strengthens Amer-
ica’s national security. And critically, we will create millions of
jobs, new jobs and entire new industries will stay in the United
States of America.
We will create jobs that cannot be exported, because we will cre-
ate our energy here at home, which makes America stronger and
which in fact strengthens our competitive posture. It is no surprise
that somebody like Jim Rogers, who runs a multi-billion dollar
company, a CEO of a Fortune 500 company, Duke Energy, is one
of the leaders, he is the chairman of America’s Competitiveness
Council. He is responsible in that capacity for creating jobs and for
making America more competitive. And he is one of the leaders in
saying that we need to set a fixed target of pollution reduction in
order to challenge our economy and in order to grow our economy
for the future and remain competitive.
Now, we are not going to do these things if we don’t pass an ag-
gressive, forward looking climate and energy combined piece of leg-
islation. Let me share with you very quickly — I am not going to
spend much time on this, but I do want to share with you why
there is an urgency to this. Senator Inhofe, you just talked about
the costs of doing some of this. Are there some costs? Yes, sir.
There are some costs. But almost every study that looks at the
costs does not factor in the impact of energy efficiency or the im-
pact of new technology or what the impact is of becoming more en-
ergy independent.
And most importantly, they none of them factor in the cost of
doing nothing. That is far more expensive for your folks in Okla-
homa or for your folks in any of the other States represented on
this panel.
So we need to be honest and realistic as we assess how we in
fact best protect the interests of our country. There is a reason that
the leaders of the G20 in Italy recently affirmed that we cannot let
7
the temperature of the planet rise more than 2 degree Centigrade.
And the reason is that all of our best scientists in peer-reviewed
studies tell us that if it goes over 2 degrees Centigrade, we risk cat-
astrophic changes to the climate, to our crops, to our water supply,
to the ocean currents, to the ecosystems that we depend on.
And I will say to you, the science, Senators, is more definitive
than ever. The science is screaming at us to take action. A few
years ago, the scientists told us that the Arctic ice would be melted
perhaps by 2030. It is now going to be summer, ice-free, by 2013.
And already Russia has gone ahead and planted a flag underneath
the ocean to say, we have the right to take these minerals out of
here, because they have an ability, because it is ice-free, to be able
to go up there and do that.
There are huge conflicts that will come out of what we are allow-
ing to happen without addressing it adequately.
In the 21 years that we have had hearings on this in the Senate,
A1 Gore and I shared the privilege of having the first hearings on
this in 1988, when Jim Hanson first told us that it was happening.
And the evidence is now clearer than ever before that a voluntary
approach just doesn’t work.
We went down to Rio with President George Herbert Walker
Bush, a Republican Administration, with the efforts of John
Sununu and Bill Reilly, put in place a voluntary framework for a
global effort to reduce emissions. Because in 1992, we determined
that we needed to do this.
What happened? In every country in the world, emissions have
gone up faster than is allowable to meet the 2 degrees Centigrade
standard. And it is because voluntary doesn’t work. Everybody is
waiting for the next person to move. Nobody wants to sort of curb
in their economy, as you have said, Senator Inhofe, because they
are afraid they will be non-competitive.
But the consequences of that are really traumatic. The best ex-
perts tell us that the last 10 years have been the hottest decade
on record, since we have kept records of temperature. Our oceans
have become 30 percent more acidic. And that has a profound im-
pact on the spawning grounds and on the krill that feed the whales
and on the cycle of the oceans.
Pine beetles have destroyed 6.5 million acres of forest land in the
western States. I recently listened to Governor Ritter from Colo-
rado come in and tell us how in Colorado alone they have lost a
million acres because beetles that used to die off because it got cold
now don’t die off. So the cycle has changed.
A hundred and eighty Alaskan villages are losing permafrost, lit-
erally melting the ground beneath their homes and feet. The citi-
zens of Newtok, Alaska — ask Lisa Murkowski, ask Mark Begich,
they will tell you what is happening in Alaska. The citizens of
Newtok, Alaska, recently voted to move their village inland be-
cause of the rise of sea level and the lack of sea ice in the winter.
That is at a cost of some $400 million.
The fact is that there is enormous melt-off of our glaciers in the
western part of our country. Water supply is already at issue. The
principal supply to American agriculture is at issue. And the rivers
around the world are at issue.
8
The Chinese have taken enormous note of this. I was in China
2 months ago. They are fearful that the great rivers of China, the
Yangtze, the Yellow River, are going to dry up, the Mekong. And
that affects a billion people and the agriculture of their nation.
Southwestern States in our country are projected now to experi-
ence permanent drought conditions by mid-century. And the area
that is burned by western wildfires is projected to nearly triple.
The fact is that the Siberian ice shelf study, which just came out
this last year, shows that because the permafrost lid is melting, be-
cause the oceans are getting warmer, we have columns of methane
rising now in the ocean. And if you were to stand at the place
where those bubbles of methane actually burst out into the open
air and light a match, it would ignite.
Methane is 20 times more dangerous and damaging than carbon
dioxide, than CCB. So we have an enormous challenge facing us in
order to be able to do this. And all of the scientists who, in these
peer-reviewed studies are telling us that these changes may well
be irreversible for a thousand years.
An organization as innocent as the Audubon Society has reported
that there is now a 100-mile swath wide belt in the United States
where there is a transformation in what plants and flowers and
bushes and shrubs and so forth will grow in America. There is al-
ready a migration that has been predicted by many scientists. So
that is why, Madam Chairman, the countries of the world, and
there are many other impacts, I am not going to go into all of them
here now, but that is why the countries of the world, including
India, China and the United States, have agreed to limit this glob-
al rise to 2 degrees Celsius.
Now, why is that so critical? Because the current warming level
of Earth, scientists tell us, is already at about .8 degrees since the
Industrial Revolution. And what is already up there in the atmos-
phere, which we can’t get out, has a half-life, that is, it will con-
tinue to do the damage it is doing today for another thousand years
perhaps.
That means that what we have put up there that has done the
damage that has raised the temperature the .8 degrees is guaran-
teed to raise it at least another .8 degrees. That means we are
going to be at almost certainly 1.6 degrees Centigrade before we
even do anything, Madam Chairman. And that gives us a cushion
of about .4 degrees before you reach the 2 degrees, which they say
could result in catastrophe.
Now, I can’t tell you that it absolutely is. I can’t sit here and tell
you with certainty that I know the answer to that. But I can tell
you as a public person that if the best scientific minds we have in
the world in peer-reviewed studies are all in unity telling us this
is the potential consequence, I think as public people we have a re-
sponsibility to try to respond. And if we are wrong, we will have
created more jobs, become more energy independent, moved to the
point of having better health in America and increased the security
of the United States. If we are right and someone else is wrong and
we haven’t done anything, the results are obviously absolutely cat-
astrophic. That is the balance here.
Now, I believe there is a workable mechanism to get this done,
Madam Chairman. If you look at our legislation, we ask America
9
to do our part, and we have to work, obviously, to convince others
to do theirs. Let me make it clear that by putting this target in
place, I believe we will attract private investment and spur a new
industrial revolution in America. We had the great movement of
wealth, if you will, in the 1990s, when we moved to the tech econ-
omy. That is an economy that was about a trillion dollars large,
and it had about a billion users. What we are looking at now is an
economy where most estimates say it is a $6 trillion economy with
6 billion users. Energy economy is the mother of all economies. And
right now, the United States of America is watching China, watch-
ing Germany, watching India and other countries race to this mar-
ketplace at the expense of the jobs of our Nation.
I believe that the pollution reduction measures that are in this
bill are very tightly focused for maximum impact. And I want to
emphasize that some people argue the effect on the economy. Sen-
ator Inhofe, you have raised this, U.S. unemployment, et cetera,
why kill more jobs. I have a report here, it is a compilation of re-
ports, different reports by the Center for American Progress, by the
U.S. Conference of Mayors, by the American Council for an Energy
Efficient Economy, by the College of Natural Resources at the Uni-
versity of California Berkeley. Every single one of these analyses,
we have done them for each of your States, for every one of you
on this committee, and we will do them for everybody on the Sen-
ate. They show net creation of jobs in every one of your States.
They show net increase of investment and money moving into your
States.
In Idaho, for instance, 7,000 to 14,000 jobs net, according to the
University of California Berkeley. According to the American Coun-
cil for Energy, by 2020, 200,200 jobs created from energy efficient
measures, a savings of $226, by 2030, 2,900 jobs created, $700 mil-
lion, according to the Center for American Progress, $700 million
will come into Idaho alone, creating 8,000 jobs. There is a variation
here.
But there isn’t one of these that doesn’t suggest an increase of
jobs, an increase of investment. We are going to create the equiva-
lent of 5 or 10 Google equivalents that are going to drive the econ-
omy of our country. That is why people like DuPont, Dow Chem-
ical, American Power, the Florida Power and Light, Duke Energy,
Cisco Systems, some of the largest companies in America are all
saying, do this. Give us a market certainty on the price of carbon.
Give us a system where you will help us to transition.
Now, I want to just say a word about that if I can. Senator
Inhofe, this is not economy-wide. Only 7,500 entities in the United
States of America are covered by this legislation. Ninety-eight per-
cent of America’s small business is exempt. Agriculture is exempt.
Transportation is exempt. Small business is exempt. So you may
say to yourself, well, what do you do with that other 2 percent?
Well, the fact is that that 2 percent represents three-quarters of
America’s greenhouse gas emissions. We are only talking about cre-
ating a marketplace between entities that pollute more than 25,000
tons of carbon dioxide a year. That is the equivalent of the output
of 2,300 homes, or 4,600 automobiles, or 130 railway cars full of
coal.
10
It exempts office buildings, apartment, homes, malls, stadiums,
small firms. We have to be able to find it in our capacity to reduce
pollution from 2 percent of America’s businesses that represent 75
percent of America’s pollution.
Now, let me say another reason we need to do this. Climate
change and our dependence on foreign oil are a significant threat
to our national security. There is nothing conservative about re-
maining indebted to hostile regimes for our energy. Doubters often
talk about the cost of taking action. But I have to tell you, every
analysis shows that the cost of not taking action is more expensive.
If we think that it is good for America to send $400 billion a year
to other countries so we can put stuff up into the atmosphere that
costs us even more to fix, we are crazy. We would be far better off
moving more rapidly toward the creation of that energy here at
home.
Eleven former admirals and high ranking generals issued a sem-
inal report warning that climate change is a “threat multiplier”
with the potential to create sustained natural and humanitarian
disasters on a scale far beyond those we see today. And John War-
ner, who will testify, our former colleague, there is no greater secu-
rity advocate for the United States, speaks eloquently about this,
as have others. General Zinni, former CentCom commander, said
this is going to cost us lives. It is going to cost us the deployment
of the American military because of the crises that will ensue as
a consequence of allowing this to go unaddressed.
It threatens to bring more famine and drought, worse pandemics,
more natural disasters, more resource scarcity and human dis-
placement on a staggering scale. And the result is, we risk fanning
the flames of failed stateism. Madam Chairman, you can see this
today in Africa. Right now, there is fighting between tribes in the
Sudan because they have been forced to move because of the lack
of water and the desertification that has taken place. So they move
into another area, fight for water, fight for location, and the result
is conflict and the destabilization of a whole region.
In an interconnected world, that threatens all of us. I think you
will hear this from Senator Warner. Let me quote Anthony Zinni
directly. He said “We will pay the price later in military terms.
And that will involve human lives. There will be a human toll.”
Fourth issue, Madam Chairman. America’s leadership is signifi-
cantly on the line here. Brazil, Mexico, South Korea, the European
community, Japan, Australia, have all committed to significant
emissions reductions. Last month, Chinese President Hu Jintao
pledged to reduce China’s emissions below projected levels.
India is working on its own domestic legislation to reduce pollu-
tion. It is a myth that China and India have been sitting on the
sidelines. I was just in China. Let me tell you, they have tripled
their wind goals and targets. They have determined to be the
world’s leader in electric automobiles. They are now the world’s
leader in solar production and in battery storage, et cetera. They
have moved to put transportation restrictions on their automobiles,
more strict than the ones that we have in this country. And they
have put them in place faster. And the fact is that they are coming
to the negotiating table with an agreement that they will be a con-
structive and positive force at Copenhagen.
11
Fifth, the economic opportunities that stare us in the face are
enormous. There are millions of jobs, major improvements to every
sector of our economy. But I am telling you, Madam Chairman, if
we hang back, you can tell what is happening. Today, of the five
top 30 companies of the world in solar, wind and advanced bat-
teries, only five are based in the United States of America. We in-
vented solar. We invented wind. And we pulled back and we al-
lowed those technologies to be developed and taken from laboratory
to shelf by other countries.
Germany now has created 280,000 new renewable energy jobs
and actually employs more people in its renewable energy sector
than in the legendary German auto industry. That is the future.
Wind energy alone can bring tremendous benefits.
I will give you an example, the State of North Dakota. I have
talked to Byron Dorgan about this. The State of North Dakota is
ranked by the Wind Power Energy Association as No. 1 wind po-
tential in the United States of America. It is currently number 24
in terms of its production. Though its regular economy has grown
by about 2 percent over the course of the last few years, its renew-
able energy sector has grown by about 19 percent. That represents
the kind of growth in each of your States, if you will take a look
at the analysis of these studies.
In Montana, there is a plan to build a $25 million wind turbine
manufacturing plant in Butte with scientists who are trained at
Montana Tech. In Pennsylvania, the wind turbine manufacturer,
Gamesa, has invested over $175 million and put over 1,100 Penn-
sylvanians to work. In Norman, Oklahoma, there is a 30-year-old
family owned company that has become the third largest manufac-
turer of small wind turbines in the world, with installations in all
50 States and over 100 countries. That business can grow and com-
pete with the Chinese.
And that is just a few examples from what comes from a clean
energy sector.
Now, I understand there is some concern in the Senate that the
process is moving too quickly. I will put aside my own feelings that
a process that began over 20 years ago is actually moving too
quickly. That could happen only by Senate standards, frankly.
But within the constraints of the Senate, what is happening here
in this committee is just one step. There are five other committees.
They are all working. The Energy Committee has done part. The
Foreign Relations Committee, the Agriculture Committee, et
cetera. By the time this gets to the floor, a comprehensive energy
and climate bill will include the inputs from six Senate committees.
And the foundation of all that work has to come through this com-
mittee first.
I will just close. You have been very generous in allowing me the
time here. Let me just close and say, OK, why put a target that
is mandatory on the reduction of emissions? Some people argue it
would be cleaner to have a carbon tax. Well, it might be cleaner.
But I don’t believe that you will change behavior with a tax at the
level that you might under some miracle be able to pass in the Sen-
ate. I doubt that there are enough people here who would vote for
a tax of any kind.
12
And therefore, to say you are going to change behavior, you are
going to have to have a tax that is high enough to force companies
to be able to reduce emissions, because they are going to say,
whoops, this is too costly, we have to go find a different way to be-
have, and we are going to invest in the different technologies.
So I don’t think this is going to work, which is why companies
that are big companies have decided to support the idea of a tar-
geted pollution reduction, mandatory reduction. Because it allows
them, if they have been good performers and they have reduced
their emissions, they can take the difference between where they
are at and the emissions target and sell it to another company that
can’t yet meet the target or wants to be able to continue its current
practices.
That is the marketplace, folks. That is classic American cap-
italism. It is classic marketplace capacity. There isn’t a dime of
public dollar in that. There is not one tax dollar in that. It is not
a Government-run program. It is a private company deciding that
it wants to behave this way or that way. And depending which way
it decides to behave, it gets an asset that is worth something, or
it sells the asset; it can buy it and continue to pollute for a period
of time while it transitions to a place where they are willing to in-
vest to meet the target.
So I would just say to all of my colleagues, I respect the passion
on this committee. I am happy to answer any questions.
I think we have to believe in America’s technology ability. I do.
We saw this in 1990 with the Clean Air Act.
I will just end on this note. I sat in that room and negotiated
with John Sununu and President Bush and Bill Reilly. And we
heard the same arguments. Everybody said it is going to cost $8
billion, and you are going to bankrupt us, and you will make us
noncompetitive, and we can’t do it. The environment community
came in and said, no, no, no, that is just those studies that sort
of exaggerate things. It is going to cost $4 billion, and it will take
4 years, and we can do it.
To the credit of George Herbert Walker Bush, he decided to do
it. And guess what? We achieved our goals within about a year and
a half to 2 years at a cost of about a billion and a half to $2 billion.
Why? Because nobody has the ability to predict what happens
when you set a target and American ingenuity and genius begins
to move to create the technologies and find the solutions to meet
that target.
I believe that is exactly what is going to happen here if we will
have the courage to set the goal and lead the world. And if we do
that, I believe we are going to, in 10, 15 years, not only see that
we have met the challenge of climate change, but we have im-
proved the health in America, we have created more jobs, we have
strengthened American security, we have met our environment re-
sponsibility, and we are more energy independent. Tell me a public
policy choice where you get five benefits for one choice. There are
very, very few of them.
Thank you, Madam Chairman.
[The prepared statement of Senator Kerry follows:]
13
Statement of Hon. John Kerry,
U.S. Senator from the State of Massachusetts
Thank you, Chairman Boxer and Senator Inhofe, for the opportunity to discuss
a set of issues as important as any we face. Chairman Boxer has been a passionate,
determined, and inspirational leader on environmental issues for as long as I’ve
known her — and an invaluable and gracious collaborator on this bill.
Today, we have an opportunity to lead the world in rolling back the urgent threat
of climate change. We can protect the air our children breathe and the water they
drink. We can improve every sector of our energy economy, from coal and nuclear
to wind and solar; take crucial strides toward energy independence; and create mil-
lions of new jobs and entire new industries that will stay in America.
But we can’t and we won’t do those things if we don’t pass aggressive, forward
looking climate and energy legislation. And let me tell you why.
First, the science is more definitive than ever and more troubling than ever,
and — 21 years since first Senate hearings on climate change back in 1988 — the evi-
dence is now clearer than ever before that a voluntary approach won’t get the job
done.
NASA scientists — the best experts we have — tell us that the last 10 years have
been the hottest decade on record. Our oceans have become 30 percent more acidic.
Pine beetles have destroyed 6.5 million acres of forest land in the western States.
180 Alaskan villages are losing permafrost — literally melting the ground beneath
their homes and their feet. Southwestern States are projected to experience perma-
nent drought conditions by mid-century, and the area burned by western wildfires
is projected to nearly triple. And worst of all, scientists say these changes may well
be irreversible for 1,000 years.
That’s why the countries of the world — including India, China and the United
States — have agreed to limit the global rise in temperature to 2 degrees Celsius.
Second, there is a workable mechanism to get this done. For America to do our
part and convince others to do theirs, we need to set a mandatory target to reduce
the carbon pollution that causes climate change — and then we need to drive private
investment to meet those goals as affordably and efficiently as possible.
The pollution reduction measures in this bill are tightly focused for maximum im-
pact: Only companies emitting 25,000 tons of carbon each year are covered. These
are big polluters — with an output equivalent to 2,300 homes, 4,600 automobiles, or
130 railway cars full of coal. Even as it exempts office buildings, apartments, homes,
malls and stadiums, farmers, small firms, and over 98 percent of America’s busi-
nesses, the bill still covers three-quarters of America’s carbon pollution. So this is
a smart way to start the ball rolling and transition America to clean energy.
Third, climate change and our dependence on foreign oil are a threat to our na-
tional security. There’s nothing conservative about remaining indebted to hostile re-
gimes for our energy. Doubters often talk about the costs of taking action. Let me
tell you, the costs of inaction are larger, and frankly they become more staggering
by the day.
Eleven former admirals and high ranking generals issued a seminal report warn-
ing that climate change is a “threat multiplier” with “the potential to create sus-
tained natural and humanitarian disasters on a scale far beyond those we see
today.” Why? Because climate change injects a major new source of chaos, tension,
and human insecurity into an already volatile world. It threatens to bring more
famine and drought, worse pandemics, more natural disasters, more resource scar-
city, and human displacement on a staggering scale. We risk fanning the flames of
failed stateism and offering glaring opportunities to the worst actors in our inter-
national system. In an interconnected world, that endangers all of us. Senator War-
ner, a friend to many here, will speak eloquently to the national security case for
preventing catastrophic climate change. General Anthony Zinni, former commander
of our forces in the Middle East, warned that without action — and I quote — “we will
pay the price later in military terms. And that will involve human lives. There will
be a human toll.”
Fourth, America’s leadership is also on the line. While the Senate stands still, the
world is racing ahead: Japan, Mexico, Brazil, South Korea, the EU, and Australia
have committed to significant emissions cuts. Last month, Chinese President Hu
Jintao pledged to reduce China’s emissions below projected levels. India, for its part,
is working on its own domestic legislation to reduce carbon pollution. So it is a myth
that China and India have been sitting on the sidelines. The truth is, they’ve been
coming to the negotiating table with concrete actions and commitments, and they’re
waiting for us to do the same!
Fifth, and as important as anything, if we act, the economic opportunities will be
enormous: millions of new jobs and major improvements in every sector of the en-
14
ergy economy. But if we hang back, we know what will happen, because it is hap-
pening already. Today, only 5 of the top 30 companies in the world in solar, wind
and advanced batteries are based in the United States. We invented solar and wind
technology, but we let others master it first, and now Germany has created 280,000
renewable energy jobs and actually employs more people in its renewable energy
sector than in the legendary German auto industry.
State by State, a smart energy bill can deliver growth and jobs. Wind energy
alone can bring tremendous economic benefits. In Montana, there’s a plan to build
a $25 million wind turbine manufacturing plant in Butte, with scientists trained at
Montana Tech. In Pennsylvania, the wind turbine manufacturer Gamesa has in-
vested over $175 million and put over 1,100 Pennsylvanians to work. In Norman,
Oklahoma, there’s a 30-year-old family owned company that has become the third
largest manufacturer of small wind turbines in the world, with installations in all
50 States and over 100 countries. And that’s just a few examples from one clean
energy sector! I understand that there is some concern inside the Senate that this
process is moving too quickly. I’ll put aside my own feeling that a process that
began over 20 years ago is quick only by Senate standards. But within the con-
straints of the Senate, we know this is only one step — albeit a crucial one — in a
broad, comprehensive, Senate-wide effort. By the time it gets to the floor, a com-
prehensive energy and climate bill will include inputs from six Senate committees.
But the foundation for all of that work — a cap on carbon pollution — must come
through this committee first.
I respect that there is a lot of passion on all sides of these issues. People are wor-
ried about jobs, about keeping energy affordable, and about economic competitive-
ness. These are real and legitimate subjects of concern. And we must address them
as thoroughly and honestly as we can together. I am confident that the more people
understand about what we are trying to accomplish here — not the politics, but the
substance — the more they will be willing to join us. So to sum up, the science is
more urgent than ever. We have a workable mechanism to address the challenge
in a way that is affordable and efficient. Our security, our leadership, and our eco-
nomic future are at stake.
And frankly, this body’s leadership is at stake, too. America and the world are
waiting to hear from the U.S. Senate. World leaders are waiting for a signal that
we are serious before they make commitments at the Copenhagen climate talks 6
weeks from now. CEOs and business leaders are waiting for a signal from Wash-
ington that will give them market certainty.
Failure to act comes with another cost. If Congress does not pass legislation deal-
ing with climate change, the Administration will use the Environmental Protection
Agency to impose new regulations. Imposed regulations are likely to be tougher, and
they certainly will not include the job protections and investment incentives we are
proposing. Killing a Senate bill is not success; indeed, given the threat of agency
regulation, those who have been content to make the legislative process grind to a
halt might well later be demanding that Congress secure the kinds of incentives and
investments we can and should simply pass today.
For all these reasons it’s time for the Senate to lead — and with an eye toward
our best traditions find common ground to move the country forward, keep our coun-
try safe and strong, and lay the groundwork for decades of economic growth to come.
Senator Boxer. Thank you, Senator Kerry. We so appreciate
your expanding on why it is so important that we act. We thank
you very much.
I want to say to the committee, we are going to now go to open-
ing statements. And we are going to be tough on the clock. I do
have a request from Senator Baucus, who is late for a health care
meeting, he would like to go first, if it is OK with my side. He said
he only needs 3 minutes. So if there is no objection, I think every-
one knows what is on your shoulders. So go ahead.
OPENING STATEMENT OF HON. MAX BAUCUS,
U.S. SENATOR FROM THE STATE OF MONTANA
Senator Baucus. Thank you. I am keeping Director Orszag and
Director Summers waiting in my office for 12 minutes. I deeply
apologize, I will be very, very brief, and I will thank the indulgence
of my colleagues.
15
First, I want to thank the Senator from Massachusetts. Senator
Kerry has worked so hard on climate change, and clearly, his state-
ment today shows how hard he has worked. He has done a great
job.
Madam Chairman, I want to thank you and thank Ranking
Member Inhofe and our witnesses for being here today to discuss
climate change. The legislation before us today is about protecting
our outdoor heritage. We, I think all of us in the country, certainly
those of us in Congress, when we leave this place, have a moral
obligation to leave it in as good a shape or better shape than we
found it. If uncontrolled, the impacts of climate change put this fu-
ture at risk.
The legislation before us today is about our economy. Montana,
with our resource-based agriculture and tourism economies, cannot
afford the unmitigated impacts of climate change. But we also can-
not afford the unmitigated effects of climate change legislation.
That is why I support passing common sense climate legislation
that reduces greenhouse gas emissions while protecting our econ-
omy. And the key word in that sentence is passing.
I have some concerns about the overall direction of the bill before
us today and whether it will lead us closer to or further away from
passing climate change legislation. For example, I have serious res-
ervations about the depth of the mid-term reduction target in the
bill and the lack of preemption of the Clean Air Act’s authority to
regulate greenhouse gas emissions.
We cannot afford a first step that takes us further away from an
achievable consensus on common sense climate change. We could
build that consensus here in this committee. If we don’t, we risk
wasting another month, another year, another Congress without
taking a step forward into our future.
I look forward to working with my colleagues on both sides of the
aisle in this committee prior to the markup to address these issues
and other key issues. I think it is very important that we do.
Thank you, Madam Chairman.
Senator Boxer. Thank you very much, Senator.
Senator Alexander.
OPENING STATEMENT OF HON. LAMAR ALEXANDER,
U.S. SENATOR FROM THE STATE OF TENNESSEE
Senator Alexander. Madam Chairman, thank you.
I have no problem with the problem. My problem is with the so-
lution. Eleven academies in industrialized countries say that cli-
mate change is real, humans have caused most of the recent warm-
ing. If fire chiefs of the same reputation told me my house was
about to burn down, I would buy some fire insurance.
But I would buy insurance that worked, and I wouldn’t buy in-
surance so expensive that I couldn’t pay my mortgage or my hos-
pital bill. That is my problem with this solution. It is going to make
it harder for Americans to support their families. When it is all
wrapped up and put together, it is going to be an economy-wide
cap-and-trade, narrowly defined energy mandates, taxes, mandates
and surprises.
My colleagues, I am sure, are going to point out the surprises
and the things we know. At a time of 10 percent unemployment,
16
utility bills going up, manufacturing jobs going overseas, a new
slush fund in Washington with corporations with their hands out.
It will be ineffective against fuel, which produces 30 percent of car-
bon, because raising the price of gasoline doesn’t change human be-
havior enough to change to reduce much carbon.
If it is like Waxman-Markey, which EPA says it mostly is, then
according to President Obama’s budget director, it is the largest
corporate welfare program in history. According to CBO, it could
reduce our gross domestic product by 3 and a half percent. Brook-
ings says $300 billion a year, et cetera.
So the strategy is, taxes, expensive energy and mandates, and
make 20 percent of our electricity from subsidized windmills. But
our dream should be cheap energy, to create jobs and eliminate
hardship. So before we embark deliberately on a program to send
jobs overseas and make it hard to pay our bills, why don’t we try
a cheap energy strategy for clean energy?
One, build 100 new nuclear plants in 20 years. They are 70 per-
cent of our carbon-free energy; wind is 4 percent of our carbon-free
energy. Two, electrify half our cars and trucks in 20 years. We can
do that without building one new power plant if we plug them in
at night. Three, explore offshore for natural gas. It is low carbon.
Four, launch four mini-Manhattan projects like the one we had in
World War II. Secretary Chu calls them innovation hubs, to find
ways to recapture carbon from coal plants, make solar costs com-
petitive, make electric batteries better, recycle used nuclear fuel.
Instead, we have this plan for a national energy tax plus a na-
tional windmill policy. This windmill policy would require building
186.000 50-story wind turbines that would cover West Virginia,
19.000 new transmission lines, $170 billion in taxpayer subsidies,
ridge tops and coastlines and treasured landscapes turned into
junkyards in the sky, kill a million birds a year. And it still would
work only a third of the time, and you would have to build natural
gas or nuclear or coal plants to back them up.
What happened to nuclear? If we are going to war, and we had
invented a nuclear navy 60 years ago, and it was doing exactly
what we wanted, and thousands of sailors had lived safely on top
of the reactors for 60 years, would we stop building nuclear ships
and start building sailboats?
Building nuclear power plants, 100 of them in 20 years, is the
fastest, cheapest, reliable way to reduce carbon from utilities, just
as electrifying half our cars is the fastest way to reduce foreign oil.
China is building 132 nuclear plants, France is 80 percent nuclear,
it has the lowest electric rates, among the lowest carbon emission
rates in Europe. Japan, Taiwan, India, the United Arab Republic,
Russia, all building nuclear plants. We invented it, and we haven’t
started a new one in 30 years.
If we went full speed ahead, by 2030, nuclear would produce 40
percent of our electricity, natural gas 25 percent, hydroelectric 10,
wind and solar 5. We would come close to meeting the Kyoto car-
bon emissions by 2030 just with nuclear plants and electric cars.
And presidential leadership could do it, remove barriers, provide
incentives, fund the Manhattan Projects. With presidential leader-
ship, we could build 100 nuclear plants, electrify half our cars and
trucks, find new low carbon natural gas, launch the Manhattan
17
Projects, meet our clean energy goals, all without a national energy
tax and without running jobs overseas.
All 40 Republican Senators agree with this four-part agenda. So
do many Democrats. Then why are we pursuing a high cost na-
tional energy tax and subsidizing 186,000 windmills, when we
could agree on a low cost clean energy plan that would create good
jobs and low electric fuel bills?
Thank you.
Senator Boxer. Thank you, Senator.
Senator Specter. Oh, I’m so sorry, Senator Klobuchar and then
Senator Specter. Under the early bird rule.
OPENING STATEMENT OF HON. AMY KLOBUCHAR,
U.S. SENATOR FROM THE STATE OF MINNESOTA
Senator Klobuchar. Thank you.
Senator Boxer, I first want to thank you for moving proactively
on this issue that is so important to our Nation’s economy, security
and environment. Your leadership on this issue is well recognized.
And I appreciate your working with me and our staff on this bill
to include provisions to better protect the middle class, to expand
agriculture allocations and to work to provide a stable business en-
vironment for companies that make energy efficient technology.
I also appreciate how both you and Senator Kerry have worked
across the aisle and people like Lindsey Graham and others. I hope
that ultimately we will have a bi-partisan bill here.
I look forward to working with you, Senator Boxer, on key issues
including ensuring that the bill further protects middle class fami-
lies as well as businesses and manufacturers from fluctuating en-
ergy costs. We have done a lot in this area, but there is more to
do. I look forward to working with my agriculture colleagues on
further agriculture provisions in this bill.
And finally, I believe that ultimately this bill must include a
strong renewable electricity standard.
Let me focus on why this legislation is important. This legisla-
tion is about putting America back in control of our energy supply.
It is about our national security, and it is about investing in the
farmers and the workers of the Midwest instead of the oil cartels
of the Middle East.
This is about getting jobs right here in this country. Unlike the
IT revolution, which was a great thing, but tended to bring jobs to
certain places in the country, the ET revolution, the energy tech-
nology revolution, if done right, will mean jobs across the country
and across demographic lines. In other words, the wind turbine
manufacturing companies won’t have signs outside that say, Ph.Ds.
only apply.
Second, there are a wide variety of solutions to our energy de-
pendence problem, as Senator Alexander has acknowledged. Some
critical paths of this bill, which I support, will take years, like de-
veloping complex technology and building more nuclear plants,
something that I believe we need to do. But some of the solutions,
which this bill acknowledges, will be more achievable in the short
term: energy efficiency, weatherization, using some of the existing
technologies we have, like solar, wind, geothermal, biomass as
quickly as possible.
18
Third, we need an energy bill, as Senator Kerry had so elo-
quently discussed, that can send clear market signals that both
short-term and long-term investment in energy technologies will be
rewarded, allowing businesses to plan to invest in new technologies
and realize long-term development of new facilities and operations.
Finally, we want an energy bill that builds on the work being
done at the State level. All over the country, we are witnessing im-
provements to our communities on the State level. Minnesota has
one of the most aggressive renewable electricity standards in the
country, 25 percent by 2025. Our biggest utility is Xcel. Its goal is
30 percent. I have talked to the CEO, Dick Kelly. He said they are
going to make it, and they are going to make it without increasing
rates.
When this legislation passed in Minnesota, it had Democratic
and Republican support, farmers, environmentalists, traditional en-
ergy companies. It passed 123 to 10 in the House, 63 to 3 in our
State Senate and was signed into law by a Republican Governor.
So while Minnesota and so many other States are already head-
ing down the path toward a new energy economy, the Federal Gov-
ernment has not even made it to the trailhead. In a famous opin-
ion, Justice Brandeis once wrote that States are truly the labora-
tories of democracy. He said that if one of the happy incidences of
the Federal system could be that a single courageous State may,
if its citizens choose, serve as a laboratory and try more social and
economic experiments without risk to the rest of the country.
Well, he didn’t mean by that statement that we should have in-
action by the Federal Government. And that is what has been hap-
pening. This bill is an opportunity to put the courage and the en-
trepreneurship of the American people up front and center. It is
about the thousands of people employed in biofuels plants through-
out our State, dotting the countryside. It is about nine people in
Starbuck, Minnesota, that had the courage to leave their jobs to go
work for a solar panel factory. It is about a little phone company
in Sebeka, Minnesota, that decided they wanted backup power for
their customers and put together a wind and solar backup system.
And one guy who is 80 years old decided that he wanted to outfit
his whole house that way. And they said, well, you know, you are
not going to get your investment back, sir, for 10 years, and you
are 80 years old. He said, that is OK, I want to go green.
You know, this, if the people of American have this kind of cour-
age, this Congress should have this courage. That is why I believe
we need to move forward on this legislation. I hope that eventually
we will be doing it on a bi-partisan basis.
Thank you.
[The prepared statement of Senator Klobuchar follows:]
Statement of Hon. Amy Klobuchar,
U.S. Senator from the State of Minnesota
Senator Boxer, I want to thank you for moving proactively on an issue so impor-
tant to our Nation’s economy, security, and environment. Your leadership on this
issue is well recognized, and I appreciate your working with me and my staff on
this bill to include provisions to protect the middle class, expand agriculture alloca-
tions, and provide a stable business environment for companies that make energy
efficient technology. I also appreciate how both you and Senator Kerry have reached
out across the aisle on this issue to Lindsey Graham and others. I believe this will
19
be key to getting the bill passed — at least that’s how we got energy legislation
passed in my State.
I look forward to working with you further on key issues including ensuring that
the bill further protects middle class families as well as businesses and manufactur-
ers from fluctuating energy costs. We’ve done a lot in this area, but there’s still
more work to be done.
As a member of the Agriculture Committee, I’m also looking forward to working
with my Ag colleagues on additional agricultural provisions.
Finally, the ultimate bill must have a strong renewable electricity standard.
Let me first focus on why this legislation is so important. This legislation is about
putting America back in control of our energy supply. It’s about investing in the
farmers and workers of the Midwest instead of the oil cartels of the Mideast. Re-
newable energy — coming from our wind, sun, ground and bio products is by its na-
ture going to involve jobs right here in our country. Unlike the IT revolution which
tended to focus the jobs in certain places in our country, the ET revolution, if done
right, will mean jobs across this country and across demographic lines. In other
words, the wind turbine manufacturing companies won’t have signs outside that say
Ph.D.s only apply.
Second, as acknowledged in the bill, there are a wide variety of solutions to our
energy dependence problem. Some things will take years — like developing complex
technology and building more nuclear plants. But some of the solutions are more
achievable in the short term — conservation, weatherization and using some of the
existing technologies — solar, wind, geothermal, biomass, as quickly as possible.
Third, we need an energy bill so that we send clear market signals that both
short-term and long-term investment energy technologies will be rewarded, allowing
businesses to plan to invest in new technologies and realize long-term development
of new facilities and operations.
Finally, we want an energy bill that builds on the work being done at the State
level. All over the country, we are witnessing improvements to our communities
through renewable energy projects, facilities, and products, as well as a focus on in-
creased energy efficiency.
For renewable electricity, for instance, I note that Minnesota is further down the
path than any other State.
By the year 2025, the State’s energy companies are required to generate 25 per-
cent of their electricity from renewable sources such as wind, water, solar, and bio-
mass. The standard is even higher for the State’s largest utility, Xcel Energy, which
must reach 30 percent by 2020. CEO Dick Kelly has been in my office and said it
is going to be tough, but they are going to make it, and they’ll meet this goal with-
out raising rates.
When this legislation passed in Minnesota, it wasn’t a partisan issue. It was sup-
ported by both Democrats and Republicans — as well as the farmers and environ-
mentalists, traditional energy companies and new renewable energy companies. It
passed overwhelmingly in the Minnesota legislature: 123-10 in the House and 63-
3 in the Senate, and was signed into law by a Republican Governor.
But while Minnesota and so many are States are already heading down the path
toward the new energy economy, Federal legislation has not even made it to the
trail head.
In a famous opinion Justice Brandeis once wrote that States are truly the “labora-
tories of democracy.” He went on to describe the special role of States when it comes
to experimenting with new policies in our Federal system.
States are where new ideas emerge, where policymakers can experiment, where
innovative proposals can be tested.
Brandeis wrote over 70 years ago, “It is one of the happy incidents of the Federal
system that a single courageous State may, if its citizens choose, serve as a labora-
tory; and try novel social and economic experiments without risk to the rest of the
country.”
Yet he did not in any way mean for State action — which has been precipitated
so often in the energy area this decade as a result of Federal inaction — he did not
mean for State action to serve as an excuse for inaction by the Federal Government.
Good ideas and successful innovations are supposed to emerge from the laboratory
and serve as a model for national policy and action. That is now our responsibility
in Congress.
When we do this, we need to put the courage and entrepreneurship of the Amer-
ican people front and center. People in my State believe in this new energy future.
Or the solar panel factory in Starbuck, Minnesota, where nine people left their
jobs to go work for this little company.
Or the story of the little phone company in Sebeka, Minnesota, with back-up
power. Will take you 10 years. He was 80. I want to go green.
20
By being part of something bigger than themselves, by actually seeing this new
homegrown energy in their own communities, it makes it a lot easier for people to
support energy legislation, to see it as part of the greater good.
If you ever visit our office in Washington, you will see a picture on the wall, and
it’s the picture of an angel placing the world in some outstretched hands, and the
words read, “The angel shrugged. She placed the world in the palms of our hands,
and she said, ‘If we fail this time, it will be a failure of imagination.’ ”
Well, I don’t believe we are going to fail; we can’t. If nine people in a solar panel
factory in Starbuck, Minnesota, have the courage and imagination to see a new en-
ergy future and the world of opportunity before us, Congress can, too.
Thank you.
Senator Boxer. Thank you so much.
Now, we do have a lot of speakers. We know that Secretary
Salazar must leave by noon. So it is my intention to get where we
are going, and at that point, if we are really slow, we will get to
at least Secretary Salazar and go back to our plan.
So here is the list. It is Bond, then Specter, Crapo then Sanders.
Senator Bond.
OPENING STATEMENT OF HON. CHRISTOPHER S. BOND,
U.S. SENATOR FROM THE STATE OF MISSOURI
Senator Bond. Thank you, Madam Chair, for holding the hear-
ing.
Unfortunately, this latest cap-and-trade bill was just released
late Friday night. That is why the EPA discussion paper is nothing
more than a political document requested by advocates and acqui-
esced by politicians. Career EPA experts would usually take about
6 weeks to conduct a thorough economic analysis. EPA’s analysis
of Bingaman-Specter ran 252 pages, Lieberman- Warner 193, Wax-
man-Markey 160. But for Kerry-Boxer, EPA slapped together a
mere 38 pages of excuses and analogies.
Left unsaid by EPA is how Kerry-Boxer provides less consumer
protection against higher prices. The businesses that will be hit
with this high carbon tax will pass along these higher prices, which
are disguised taxes, to every family, every small business, every
farm, in the United States. If you think about it, a smaller pie pro-
duces smaller slices. In the case of Kerry-Boxer, their bill has a
more stringent 20 percent target in 2020, instead of 17 percent in
Waxman-Markey. It means it will distribute 1.46 billion fewer al-
lowances between 2012 and 2030. And while most of Kerry-Boxer
and Waxman-Markey’s allocation percentages are the same, the
Kerry-Boxer allocates smaller. Smaller pie, smaller slices, which
mean less relief from the burdensome taxes. This means, by my
calculations, electric consumers will receive nearly $16 billion less
from Kerry-Boxer in protection against higher energy prices.
Since consumers and workers in coal dependent States like the
Midwest will bear the brunt of this multi-million dollar shortfall,
we deserve to know how much less it will protect gas consumers
and trade exposed workers. Another gaping hole is the plight of
farmers, a major concern in the Midwest and South. Cap-and-trade
threatens farmers and livestock producers with higher production
costs, from fuel to run their machinery to fertilizer to drying costs
to the cost of shipping their goods to market. It is as if the Kerry-
Boxer bill is telling farmers and the ag communities, you are not
important. It took away the USDA’s offset role, negotiated in the
House, removed the 5-year pause in EPA’s indirect land use rule.
21
It proposes uncertain potential for ag offsets. It proposes higher
production costs for farmers. And their bill will result in ag lands
taken out of production. That means higher food prices for all of
us.
The last dynamic is a result of farmers reacting to a carbon offset
program by taking land out of production. Higher food prices, more
pain at the grocery checkout for families. I don’t know if EPA even
understands, or else they chose not to discuss in their discussion
paper these land production dynamics and the regional disparities
in crop and production cost estimates. America deserves better.
America’s families, farmers, and workers deserve to know how
Kerry-Boxer will impose trillions of dollars in higher energy taxes,
kill millions of jobs and treat unfairly entire regions of the country
such as the Midwest, South and Great Plains.
The analysis discussed about new green jobs did not mention the
tremendous costs to existing jobs of this carbon tax to be passed
throughout our economy. Independent organizations not swayed by
the Administration’s influence, such as the Congressional Budget
Office, say the same thing, cap-and-trade will hurt the economy
and cost jobs.
Now, we can make this country, including the North American
continent, energy independent in 15 years, if we have some leader-
ship to start developing in an environmentally friendly, efficient
way to tap the energy resources that we have. Producing more of
the energy we need here, using significantly more nuclear power,
using energy conservation, using electric cars. These will generate
more good jobs, produce more revenue, instead of costing the tre-
mendous amount of taxpayer subsidies for wind and solar. And we
can do that without costing jobs that are higher pay, existing jobs
throughout the economy.
We want to see changes. But we want to make them smart, en-
ergy efficient, not kill jobs, not put burdens on families, small busi-
nesses and farmers.
I thank the Chair.
Senator Boxer. Thank you very much.
Senator Specter.
OPENING STATEMENT OF HON. ARLEN SPECTER,
U.S. SENATOR FROM THE STATE OF PENNSYLVANIA
Senator Specter. Thank you, Madam Chairwoman.
I think it is not too much to say that what we are doing today
may really turn out to be historic, as we grapple with very critical
objectives. The objective of providing energy for our country, to
take care of us and our economy in the future, to deal with climate
change and to protect the planet from global warming, and to free
ourselves from dependence on OPEC and Venezuelan oil.
I compliment you, Madam Chairwoman, for your prodigious work
here, and both you and Senator Kerry for producing the legislation
we are looking toward today. I note, as everyone must, the very
heavy political overtone at the start of these hearings. It is my
hope that we will listen to the witnesses. We all are concerned
about job loss.
My State, Pennsylvania, is a microcosm. It has been built upon
coal and steel. And it is critical that any legislation take into ac-
22
count those factors. My State has a great deal of natural gas with
the new Marcellus Shale, opening clean fuel for the future. My
State is a leader on green jobs. A week ago today, I held a hearing
in Pittsburgh on the potential of green jobs. But at the same time,
concerned as to what would happen in southwestern Pennsylvania
in the coal mines.
Now, we are building on Lieberman-Warner, and in the 109th
Congress I worked with Senator Bingaman to try to craft a mod-
erate bill which got support from many of the environmental
groups, got support from the power plants and got support from the
United Mine Workers. Now, for a Pennsylvania Senator, support
from those facets, especially the mine workers, is very, very impor-
tant.
We are open for business for people who have problems and
ideas. Yesterday, I met with the Building Trades Council in Penn-
sylvania. And they brought to my attention, as it had been before,
the refinery problem. Well, our refineries are not up to date. And
there are problems with them. But there are thousands of jobs in
Philadelphia on the Sunoco refinery and on the Conoco Phillips re-
finery. So when I hear comments about loss of jobs and higher
costs for consumers, I am very, very much concerned with that.
We have dedicated some $80 billion in the stimulus package to
wind and hydro power. So we are moving ahead. So it is com-
plicated. I have been in the Senate a while, and I haven’t seen two
mammoth legislative problems like health care and climate control,
which we are facing now. But it would be my hope that we will fi-
nally get to the witnesses, and then we will have other witnesses.
And the people who have raised objections, I respect them, have
worked with them for a long time. We will bring their witnesses
in, and let’s be fact oriented, and let’s look for public policy. We all
have the same objectives and the same goals. It would be very re-
freshing in America today if we could find a bi-partisan answer.
Thank you, Madam Chairwoman.
Senator Boxer. Thank you so much, Senator.
Let’s see, next is Senator Sanders, who isn’t here, so we will go —
I am sorry.
Senator Crapo.
OPENING STATEMENT OF HON. MIKE CRAPO,
U.S. SENATOR FROM THE STATE OF IDAHO
Senator Crapo. Thank you very much, Madam Chairman.
I want to comment on a few things like process and a few aspects
of the bill that I want to highlight, and then conclude discussing
the policy issues that a number of my colleagues have already ad-
dressed.
With regard to process, Madam Chairman, I want to congratu-
late you for having some bill language for us to evaluate, although
we just barely got it. I just went through the process in the Fi-
nance Committee of having to actually go through an entire 2-week
markup and vote on a bill that didn’t exist. In fact, I am not sure
it ever did get fully drafted, because then it was redrafted as it was
merged with the Health Committee bill. That process was flawed.
I appreciate the fact that we have bill language. I would hope
that as we move through the hearing process here that we will also
23
take the time to get a thorough EPA analysis and to get a thorough
CBO score before we would go to any kind of a markup. And let
the American public, as well as this committee, to truly vet this
legislation and understand what the exact wording in the bill
means and does for us.
Second, I appreciate our witnesses begin here today. I work with
all of them and appreciate the relationship I have with them and
look forward to hearing what they have to say. I do wish that the
Secretary of Agriculture was here. In fact, Madam Chairman, I
wish that the legislation gave the Secretary of Agriculture a great-
er role.
Senator Boxer. Senator, if you would yield without losing any
time, we do have a statement. He is traveling in China. But he has
a wonderful statement which I will quote from later.
Senator Crapo. All right, good. I appreciate that. And actually,
the legislation as it is now structured puts the EPA in charge of
the offset programs for farmers and foresters, as I understand it;
is that not correct?
Senator Boxer. That is not correct. Again, without losing his
time, we leave it up, we say the White House will, it is a place
holder for the Ag Committee, which Chairman Lincoln under-
stands. And she is planning to fill it in. So as we have a place hold-
er for Finance, we have a place holder for Ag. And in the bill, it
just says right now that the White House will determine who
would be in charge of it.
Senator Crapo. All right, very good. This just shows the impor-
tance of us being able to have the time to know what is in the bill
and to vet it adequately. But I really do hope that when we get to
that point and we get it finalized that we have the Department of
Agriculture in charge of managing the offsets in any bill that we
might pass dealing with farmers and foresters.
I want to move now to the policy issues that we are all dis-
cussing. I really don’t believe there is a huge disagreement between
us on the need for us to move forward and develop a very robust
and meaningful national energy policy that will help us to dramati-
cally remove or reduce our dependence on carbon-based forms of
energy. I personally think that our country is far too dependent on
petroleum as a form of energy. Not that we shouldn’t recognize the
need for petroleum and develop our own resources, because frankly,
we are also far too dependent on foreign sources of that energy.
And as Senator Kerry indicated, that creates a threat not only to
our national security in a defense context, it creates a threat to our
economy, as we have most of our eggs in just one or two baskets,
so to speak.
So I strongly support developing a national energy policy that
will help us to become more diversified. I often analogize it to an
investment portfolio, and very few people would invest all of their
assets or resources in one place or just a couple places. A diversi-
fied investment portfolio is clearly a better way to approach our en-
ergy policy, just like it would be in managing one’s own financial
circumstances.
Because of that, I am a very strong advocate for wind and solar
and geothermal and nuclear, which I am going to talk a little bit
more about, and a number of other kinds of energy. My point,
24
though, is very similar to that made by Senator Alexander. And
that is that as we move to new, strong, robust energy policy in our
country, we should do so in a way that does not devastate the econ-
omy. I am concerned that the provisions of this legislation would
have the impact that many of my colleagues have already identi-
fied. We can do things like focus on conservation aggressively and
find tremendous reductions of consumption just in the conservation
arena. In fact, every bit of energy that we conserve is the equiva-
lent, in my opinion, to energy generated.
Second, nuclear power. And I wish the bill did more for nuclear
power. Reading from the text of the bill itself, which does have a
nuclear section, it talks about how nuclear energy is the largest
provider of clean, low carbon electricity, almost eight times larger
than all renewable power production combined, excluding hydro-
electric power. This is from the bill itself.
Senator Boxer. [Remarks off microphone.]
Senator Crapo. I appreciate that. My problem is that we con-
tinue, in different contexts, to hear positive support with regard to
nuclear, but the specific serious details that the committee needs
to be getting into with regard to nuclear, in terms of the loan guar-
anty programs, the financial commitments to construction of new
sites, the effort to address the incredible regulatory burdens and
delays that are stopping us from being able to move forward ag-
gressively. Those kinds of very robust energy policies in the nuclear
context need to be put in the bill, rather than just the findings
about how important nuclear is.
So I appreciate the fact that the Chairman has put this in the
legislation and I hope to work with her. We are already working
with many members of the committee to address this issue and get
a robust energy title.
Senator Boxer. Thank you very much.
Senator Sanders isn’t here, so we will skip over him until he gets
back and go to Senator Udall.
OPENING STATEMENT OF HON. TOM UDALL,
U.S. SENATOR FROM THE STATE OF NEW MEXICO
Senator Udall. Thank you very much, Chairman Boxer. Thank
you for your leadership. I have said a number of times here that
you have weighed in in such a way that has been very persuasive,
and I think Senator Kerry joining us in these Tuesday group ses-
sions has been very, very helpful.
Today we are facing a narrow window of opportunity on three
fronts: our economy, our environment and our national security.
Every recent economic downturn in our country has been preceded
by a major spike in energy prices, and 2008 was no exception. With
world oil production flat, we are likely going to see worse than $4
gasoline when the world economy turns around and demand re-
turns. Nobody wants to see that, but I am afraid that is where we
are headed.
Our legislation here today offers a way out of that economic trap.
We can loosen our dependence on foreign oil supplies, which are
limited and restricted, and create jobs and home grown energy.
This legislation takes a do it all, do it right approach to energy
policy. The bill today provides powerful incentives for plentiful, af-
25
fordable, renewable energy like wind and solar. The bill will create
tens of thousands of jobs that save hundreds of billions of dollars
in energy efficiency. The bill provides critical resources to increase
the safety and security of our nuclear energy power plants. The bill
provides incentives to tap our abundant low carbon supplies of
American natural gas, which have increase by 40 percent in just
the last 2 years.
The bill improves upon the already substantial investments in
carbon capture and sequestration for coal power that were made in
the House legislation. And the bill provides strong incentives to
capture CO 2 for enhanced domestic oil recovery, which can increase
our domestic oil supplies by four times, enough supply for a decade
or more.
The bill improves the renewable fuel standard by creating a tech-
nology neutral standard, which is important for new, innovative
sources of biofuel like algae. The incentives in this legislation are
based on a fundamental principle: the polluter pays. There should
be a fee for permits to pollute, since pollution is a cost imposed by
a profit making entity on society.
If polluters do not have to consider the costs of their actions,
then society will face the costs of global warming: increased
droughts, wildfires, crop loss and flooding. Society at large will pay
the cost instead.
Finally, we must find new sources of energy to preserve our na-
tional security and independence. Two-thirds of the world’s oil sup-
plies lie in six Middle Eastern nations and Russia, which do not,
do not operate based on market principles. Future Presidents will
face national security decisions if we enact this legislation and
move rapidly toward energy independence.
And I am going to yield back my time now, because I anxiously
await the testimony of our excellent panel and look forward to
hearing Secretary Salazar and the others here. Thank you.
Senator Boxer. Thank you, Senator Udall.
Senator Voinovich.
OPENING STATEMENT OF HON. GEORGE V. VOINOVICH,
U.S. SENATOR FROM THE STATE OF OHIO
Senator Voinovich. Thank you, Madam Chairwoman.
Climate change, I think we know, is a serious and complex issue
that deserves our full attention. I think that Senator Alexander did
a very good of eloquently stating that there are alternatives to this
legislation, and I think that Senator Bond did a very good job of
outlining the impact that this legislation would have on the econ-
omy of our country.
This may be the most single significant piece of legislation that
has come before this committee, touching every section of the econ-
omy and having an immense energy, economic, environmental and
national security consequences. Yet despite our requests of earlier
this year, the committee plans no legislative hearings on specific
bill texts. Rather, we will proceed with conceptual hearings only.
And now I am told we will proceed to a markup and final vote on
November 3.
I note that on legislation of significant importance the Senate
has a history of expending the time and consideration necessary to
26
achieve broad bi-partisan support before reporting legislation out of
committee. For example, when considering the American Clean En-
ergy Leadership Act, the Senate Energy Committee held 19 formal
hearings and 11 open business meetings over a span of 5 and a half
months before favorably reporting out a bill, a bi-partisan bill.
Following a similar process during consideration of this legisla-
tion is important, because we cannot afford to get it wrong. At this
point, we do not fully understand how this legislation will impact
GDP or the price, supply and reliability of electricity, gasoline and
other commodities that millions of Americans are going to have to
pay. What is more, we don’t know if the bill will have any appre-
ciable impact on climate change. EPA’s recent economic analysis of
the bill fails to provide answers to these questions. Instead, it com-
pares and contrasts various provisions of 1733 with the Waxman-
Markey bill.
First, a credible legislative process on Kerry-Boxer cannot be
supported by a piecemeal analysis based on estimates from the
House bill. Second, EPA did not model all the Waxman-Markey
provisions and include in their assessment assumptions concerning
the timing and availability of clean energy technologies, CCS, nu-
clear and offsets that defy technological, practical and political re-
alities.
We do have a comprehensive analysis from various outside
groups on the possible impacts. For example, the American Council
for Capital Formation has concluded by 2020, the House bill could
reduce household income in my State of over $261 per year, in-
crease energy costs up to 20 percent, and result in the net loss of
more than 100,000 jobs.
I have been working with the EPA for a number of months to
correct these deficiencies. While we made progress on that front,
we now face a hurried political agenda. At this stage of the game,
I think the most important thing is that we get a comprehensive
analysis on this bill before we proceed to markup.
And only the Chairman of this committee and the Administration
can make this possible. I recall when I had the Clear Skies legisla-
tion before this committee that the members on the other side of
the aisle insisted that they have analysis of their prospective bills
before we marked up the Clear Skies legislation. They delayed the
markup on three occasions, it was over a 2- or 3-month period, in
spite of the fact that we provided 10,000 pages of analysis.
Madam Chairman, I made the point the last time around, and
that was that we needed the EPA to do the analysis, complete
analysis before this bill went to the floor. I think you realize what
a disaster it was when it hit the floor because of the few number
of the members of the U.S. Senate that actually supported it.
In closing, I reference an October 21, 2009, New York Times arti-
cle by John Broder, which states in regard to Copenhagen, “The
United States and many other countries have concluded that it is
more useful to take incremental steps toward a global agreement
rather than try to jam it down through a treaty.” The article goes
on to say, “U.S. officials and congressional leaders have said that
final legislative action on a climate bill would not occur before the
first half of next year.”
27
So Madam Chairman, the question I have for you and Senator
Kerry and the other members of this committee, why are we trying
to jam down this legislation now? Wouldn’t it be smarter — wouldn’t
it be smarter to take our time and do it right, like we didn’t do it
the last time around that we had this legislation before us?
[The prepared statement of Senator Voinovich follows:]
Statement of Hon. George V. Voinovich,
U.S. Senator from the State of Ohio
Madam Chairwoman, climate change is a serious and complex issue that deserves
our full attention. I acknowledge your commitment to timely legislation, but the ab-
breviated process by which this legislation is moving is not conducive to thoughtful,
bipartisan climate change legislation.
This may be the single most significant piece of legislation that has ever come
before this committee, touching every sector of the economy and having immense
energy, economic, environmental and national security consequences. Yet despite
our requests of earlier this year, the committee plans no legislative hearings on spe-
cific bill text; rather, we will proceed with conceptual hearings only. Now, I am told
that we will proceed to a markup, and a final vote, on November 3.
I note that, on legislation of significant importance, the Senate has a history of
expending the time and consideration necessary to achieve broad, bipartisan support
before reporting legislation out of committee. For example, when considering the
American Clean Energy Leadership Act (ACELA), the Senate Energy Committee
held 19 formal hearings and 11 open business meetings over a span of 5 and a half
months before favorably reporting a bill with bipartisan support.
Following a similar process during consideration of this legislation is important
because we cannot afford to get this wrong.
At this point we do not fully understand how this legislation will impact GDP or
the price, supply and reliability of electricity, gasoline and other commodities that
millions of Americans depend upon every day. What’s more, we don’t know if the
bill will have any appreciable impact on climate change.
EPA’s recent economic analysis of the Kerry-Boxer climate bill fails to provide an-
swers to these questions. Instead, it compares and contrasts various provisions of
S. 1733 with Waxman-Markey bill.
First, a credible legislative process on Kerry-Boxer cannot be supported by a
piecemeal analysis based upon estimates from the House bill. Second, EPA did not
model all of Waxman-Markey’s major provisions and included in their assessment
assumptions concerning the timing and availability of clean energy technologies (e.g.
CCS and nuclear) and offsets that defy technological, practical and political realities.
We do have comprehensive analyses from various outside groups on the possible
impacts of Waxman-Markey. For example, the American Council for Capital Forma-
tion has concluded that by 2020 the House bill could reduce household income in
my home State of Ohio by up to $261 per year on average, increase energy costs
by up to 20 percent, and result in a net loss of more than 100,000 jobs. But this
is no substitute for EPA’s providing a comprehensive, unbiased assessment of the
bill.
I have been working with EPA for a number of months to correct these defi-
ciencies. And while we have made progress on that front, we now face a hurried
political agenda. At this stage of the game, I would be willing to release my hold
on Robert Perciasepe if EPA is given the time necessary to provide a comprehensive
analysis on the bill before we proceed to mark up.
Last year’s bill — the Lieberman- Warner proposal — saw a miserable showing on
the Senate floor. It gathered only 32 votes on the Senate floor — and subsequent to
the vote, 9 of the Senators voting to limit debate sent Senator Reid a letter saying
they wouldn’t have votes for the bill on final passage. I predict that if we rush this
bill through committee without a considered, thoughtful amendment process, we
will have a similar result.
Madam Chairwoman, when this committee was considering the Clear Skies Act —
legislation that was far less complicated or far reaching — several analyses were
completed as we considered legislative text. I recall that Senators Baucus, Carper,
Chaffee and Obama were adamant that we have an EPA analysis on their alter-
native proposals before moving forward. In fact, even after the Administration gave
them 10,000 pages of analyses, they delayed the mark up three times. I insist that
similar consideration be afforded to us in this process.
In closing, I reference an October 21, 2009, New York Times article, which states
in regard to Copenhagen, “the United States and many other . . . countries have con-
28
eluded that it is more useful to take incremental . . . steps toward a global agree-
ment rather than to try to jam through a treaty.” The article goes on to say: “[IJ.S.l
officials and congressional leaders have said that final legislative action on a climate
bill would not occur before the first half of next year.”
So Madam Chairwoman, the question I have for you and Senator Kerry is, why
are you trying to jam this legislation through committee when it is unlikely we will
move legislation or that a treaty will be ratified this year?
Senator Boxer. Thank you, Senator. I am going to answer a cou-
ple of things you said, I think it is important.
No. 1, in terms of process, the committee rules say you have to
have a bill out for 3 days before markup. Ours will be out for 10
days. And I appreciate Senator Crapo’s comments about that.
No. 2, this need for bi-partisanship — believe me, I would give
anything if I had a John Warner still sitting here. We don’t have
it. Climate change, global warming, isn’t waiting for who is a Dem-
ocrat and who is a Republican. Either we are going to deal with
this problem or we are not. That is No. 2.
And as was stated before, we are going to be in negotiations with
both sides, with members on and off this committee.
The last point I am going to put in the record, a study that
shows that Senator Alexander’s plan to build 100 nuclear plants by
2030 would cost $800 billion, all paid for by ratepayers. And most
of us on this side of the aisle believe a better way to go is our legis-
lation, because putting a price on carbon will make the nuclear
field way more competitive and will result in 200 plants being
built.
So I think that is part of the debate we are going to have. Very
last point I am going to put in the record, John Kerry’s good staff
work here, analysis of jobs in every State showing that, these are
net jobs created in Ohio, 35,000 to 61,000 jobs. These are studies
that were done over a great period of time. So put all that in record
and call on Senator Lautenberg.
[The referenced information follows:]
i '
GENERATING FAILURE
How Building Nut I ear Power Plants We utd Set
America Back Sin the Race Against Global Warms ng
30
Generating Failure
How Building Nuclear Power Plants Would
Set America Back in the Race Against Global Warming
Travis Madsen and Tony Dutzik
Frontier Group
Bernadette Del Chiaro and Rob Sargent
Environment America Research & Policy Center
November 2009
31
Acknowledgments
T he authors wish to thank Peter Bradford, Adjunct Professor at Vermont Law School; Dr. Nathan
Hultman at the University of Maryland School of Public Policy and the Joint Global Change
Research Institute at Pacific Northwest National Laboratory; Matthew Freedman at TURN; and
Bill Marcus at JBS Energy, Inc., for their insightful comments on drafts of this report. Thanks also to
Sahil Kapur and Elizabeth Ridlington at Frontier Group for research and editorial support.
Environment Maryland Research & Policy Center is grateful to the Educational Foundation of America
for making this report possible.
The authors bear responsibility for any factual errors. The recommendations are those of Environment
Maryland Research & Policy Center. The views expressed in this report are those of the authors and do
not necessarily reflect the views of our funders or those who provided review.
© 2009 Environment Maryland Research & Policy Center
Environment Maryland Research & Policy Center is a 501(c)(3) organization. We are dedicated to
protecting Maryland’s air, water and open spaces. We investigate problems, craft solutions, educate
the public and decision makers, and help Marylanders make their voices heard in local, state and
national debates over the quality of our environment and our lives. For more information about
Environment Maryland Research & Policy Center or for additional copies of this report, please visit
www.environmentmaryland.org.
Frontier Group conducts independent research and policy analysis to support a cleaner, healthier and
more democratic society. Our mission is to inject accurate information and compelling ideas into public
policy debates at the local, state and federal levels. For more information about Frontier Group, please
visit www.frontiergroup.org.
Cover photo: iStockPhoto/ Anthony Clausen
Layout: Alec Meltzer, meltzerdesign.net
32
Table of Contents
Executive Summary i
Introduction 6
America Must Act Quickly to Limit
the Consequences of Global Warming 8
Global Warming Threatens the Health
and Well-Being of All Americans 9
To Limit the Consequences of Global Warming,
America Must Swiftly and Substantially Cut
Emissions of Global Warming Pollution 10
Nuclear Power Is Not a Solution to Global Warming 15
Nuclear Power Is Too Slow to Reduce
Global Warming Pollution in the Near-Term 1 5
Choosing to Build New Reactors Would Divert
Resources from More Cost-Effective Strategies 24
Nuclear Power Is Not Needed to Provide
Reliable, Low-Carbon Electricity for the Future 31
Policy Recommendations 37
Methodology 39
Notes 42
33
Executive Summary
F ar from being a solution to global warming,
nuclear power will actually set America back
in the race to reduce pollution. Nuclearpower
is too slow and too expensive to make enough of
a difference in the next two decades. Moreover,
nuclear power is not necessary to provide dean,
carbon-free electricity for the long haul.
The up-front capital investment required to build
100 new nuclear reactors could prevent twice as
much pollution over the next 20 years if invested
in energy efficiency and clean, renewable energy
instead. Taking into account the ongoing costs of
running the nuclear plants, a clean energy path
would deliver as much as five times more progress
for the money.
Early action matters in the fight against
global warming.
warming pollution by 25 to 40 percent below
1990 levels by 2020.
■ Reducing emissions from power plants holds
large potential for early progress. The share of
the U.S. emissions budget available to electric
power plants could be as little as 34 billion
metric tons of carbon dioxide (C0 2 ) from
2010 cumulatively through 2050.
New nuclear reactors would be built too slowly
to reduce global warming pollution in the near
term, and would actually increase the scale of
action required in the future.
■ No new reactors are now under construction
in the United States. The nuclear industry will
not complete the first new reactor until at least
2016, optimistically assuming construction
will take four years after regulatory approval.
■ The more total carbon dioxide pollution that .
humanity emits into the atmosphere, the
greaterthewarming-andconsequentdamage.
Earlier action allows us more flexibility to
respond to an evolving understanding of
humanity's role in shaping the climate.
* According to current science, humanity as a
whole can emit no more than 1 trillion metric
tons of carbon dioxide from 2000 through
2050 in order to have a 75 percent chance of ■
limiting the global temperature increase to
3.6° F above the pre-industrial era - a target
the international community has set to limit
the severity of global warming impacts. This 1
trillion metric tons is our “carbon budget."
■ To facilitate keeping total emissions within this
budget, a panel of distinguished Nobel Prize-
winning scientists have called on developed ■
nations to reduce their emissions of global
However, it is likely that no new nuclear
reactors could be online until 2018 or later.
During the last wave of nuclear construction
in the United States, the average reactor took
nine years to build. New reactors are likely to
experience similar delays. For example, a new
reactor now under construction in Finland
is at least three years behind schedule after a
series of quality control failures.
The American nuclear industry is not
ready to move quickly. No American power
company has ordered a new nuclear power
plant since 1978, and all reactors ordered
after the fall of 1973 ended up cancelled. As
a result, domestic manufacturing capability
for nuclear reactor parts has withered and
trained personnel are scarce.
Even if the nuclear industry managed to
complete 100 new reactors in the United
How Building Nuciear Power Plants Would Set America Back in the Race Against Global Warming
34
States by 2030 - the level of construction In contrast, energy efficiency and renewable
advocated by supporters of nuclear power energy sources can make an immediate
- new nuclear power plants could still only contribution toward reducing global warming
reduce cumulative power plant emissions by pollution.
12 percent over the next two decades, leading
to a higher and later peak in pollution. As a ■ Clean energy can begin cutting emissions
result, America would bum through its 40- immediately. Energy efficiency programs are
year electric sector carbon budget in just 15 already reducing electricity consumption by
years. (See Figure ES-1.) 1-2 percent below forecast levels annually
in leading states, and the U.S. wind industry
is already building the equivalent of three
nuclear reactors per year in wind farms, and
growing rapidly.
Figure ES-1 : Projected Cumulative Electric Sector Emissions of Global Warming
Pollution after 2010 with No Action, 1 00 New Reactors Built by 2030, or an
Equivalent Capital Investment in Clean Energy
60,000 -j .
Reference Case
(AEO 2009)
100 Nuclear
Reactors by 2030
Equivalent Capital
Investment in
Clean Energy
(Midpoint)
2010 2015 2020 2025 2030
Nuclear reactors are too slow to cut enough pollution in the next two decades. With the up-front capital
investment required to build 100 new nuclear reactors, America could achieve twice as much by investing in
clean energy instead.
Generating Failure
35
* With the up-front capital investment required
to build 100 new nuclear reactors, America
could prevent twice as much pollution in the
next 20 years by investing in clean energy
instead. (Midpoint estimate, see Figure ES-1
and page 21 for more details.)
■ However, even this level of investment in
clean energy would not be enough to keep
U.S. power plant emissions within budget.
(See Figure ES-1.) America should cut power
plant emissions on the order of 50 percent
within the next decade to limit the worst
consequences of global warming.
Nuclear power is expensive and will divert
resources from more cost-effective energy
strategies.
■ Building 100 new nuclear reactors would
require an up-front capital investment on the
order of $600 billion (with a possible range of
$250 billion to $1 trillion), diverting money
away from cleaner and cheaper solutions.
■ Any up-front investment in nuclear power
would lock in additional expenditures over
time. Over the life of a new reactor, the
electricity it produces could cost in the range
of 12 to 20 cents per kilowatt-hour, or more.
In contrast, a capital investment in energy
efficiency actually pays us back several times
over with ongoing savings on electricity bills,
and an investment in renewable power can
deliver electricity for much less cost.
■ Per dollar spent over the lifetime of the
technology, energy efficiency and biomass
co-firing are five times more effective at
preventing carbon dioxide pollution, and
combined heat and power (in which a power
plant generates both electricity and heat for
a building or industrial application) is greater
than three times more effective. In 2018,
biomass and land-based wind energy will be
more than twice as effective, and offshore
wind power will be on the order of 30 percent
more effective per dollar of investment, even
without the benefit of the renewable energy
production tax credit. (See Figure ES-2.)
■ By 2018, and possibly sooner, solar
photovoltaic power should be comparable
to a new nuclear reactor in terms of its per-
dollar ability to prevent global warming
pollution. Some analyses imply that thin film
solar photovoltaic power is already more cost-
effective than a new reactor. And solar power
is rapidly growing cheaper, while nuclear
costs are not likely to decline.
N uclear power is not needed to provide relia ble,
low-carbon electricity for the future.
■ Nuclear power proponents argue that nuclear
plants are needed to produce low-carbon
"base-load” power. However, the need for
base-load power is exaggerated and small-
scale clean energy solutions can actually
enhance the reliability of the electric grid.
■ Many clean power sources - including
energy efficiency improvements, combined
heat-and- power technologies and renewable
energy sources such as biomass, geothermal
energy and solar thermal power with heat
storage - are available at any time, just like
nuclear power. Others, including wind and
solar photovoltaic power, are predictable with
about 80-90 percent accuracy a day in advance.
With proper planning and investments in a
"smart grid” to facilitate wise use of resources,
clean energy solutions could supply the vast
bulk of America's electricity needs.
■ Over-reliance on base-load power plants such
as nuclear reactors can harm the reliability of
the grid. Because nuclear reactors provide
power in massive, inflexible, all-or-nothing
blocks, they often produce large amounts
of power at times when few people need it.
Moreover, when a reactor fails, it can have
dramatic and widespread consequences for
the availability of electricity. For example,
How Building Nuclear Power Plants Would Set America Back in the Race Against Global Warming
36
Figure ES-2: Comparative Ability of Electricity Technologies to Prevent Global
Warming Pollution, per 2018 Dollar Spent over Technology Lifetime - Online in
2018, Merchant Financing Terms
c
,o
*45
e
u
>
01
fc-
CL
3
O
a
O)
E
I
-Q
_o
20iS, a reasonable estimate for the first date a new reactor could be online, nuclear power will be among
the least cost-effective options for reducing global warming pollution. Source: see discussion on page 29 and
Methodology on page 39.
Generating Failure
37
when a power line failure triggered the
shutdown of two nuclear reactors at Turkey
Point in southern Florida in February 2008,
more than 3 million customers in the Miami
area lost power for up to five hours - causing
traffic jams, stranding people in elevators,
and widely disrupting business.
To address global warming, U.S. policy should
focus on improving energy efficiency and
generating electricity from clean sources that
never run out - such as wind, solar, biomass ■
and geothermal power. State and federal
leaders should:
■ Oppose additional subsidies for nuclear
power. Nuclear power has already benefited
from more than $140 billion in federal subsidies
over the last half-century, from liability
protection to loan guarantees. The federal "
government should not further subsidize new
nuclear power plants. Any subsidies for low-
carbon energy alternatives must be judged
based on their relative short-term and long-
term costs and environmental advantages.
■ Reduce the nation's emissions deeply
enough to prevent dangerous impacts
from global warming, guided by the latest
scientific understanding. The United States
should reduce its emissions of global warming
pollution 35 percent below 2005 levels,
with the vast majority of emissions coming
domestically, and reduce emissions by more
than 80 percent by 2050. Polluters should pay
for any right to use the atmosphere, and any
revenues should support investments in clean
energy and benefit consumers. The United
States should also work with other nations
to achieve an international agreement to do
what it takes to prevent the worst impacts of
global warming.
Require the nation to reduce overall
electricity use by 15 percent by 2020 and to
obtain at least 25 percent of its electricity
from clean, renewable sources of energy
that never run out, such as wind and solar
power, by 2025. States should also enact
similar policies or expand existing targets.
Strengthen energy efficiency standards and
codes for appliances and buildings with the
goal of reducing energy consumption in new
buildings by 50 percent by 2020 and ensuring
that all new buildings use zero net energy
by 2030. Advanced states should go further,
aiming for all new buildings to achieve net-
zero energy performance by 2020.
Invest in electric grid modernization to
maximize our potential to take advantage
of a diverse range of energy efficiency
opportunities and clean power sources.
How Building Nuclear Power Plants Would Set America Back in the Race Against Global Warming
38
Introduction
P eople around the world are growing
increasingly alarmed about global warming
— and for good reason. Every day, it seems,
scientists announce a new finding that points
toward grave peril for our civilization. 1
The damaging impacts of warming - from the
acidification of the world's oceans to melting
glaciers and rising sea levels - are happening even
faster than the most eye-opening predictions
made by the United Nations' Intergovernmental
Panel on Climate Change just two years ago. 2
Scientists are becoming increasingly concerned
that critical thresholds are a matter of years or a
few decades away - beyond which lay dramatic
and irreversible changes to our world and our
way of life. 3
Given the pollution that humans have already
produced, some impacts, such as the melting of
mountain glaciers and the resulting disruption
of water supplies, will be unavoidable and
irreversible. 4 However, with immediate, swift and
decisive action at all levels of government - local,
state, national and international - we still have a
chance to avoid many of the most catastrophic
impacts of global warming.
Given the scale of the threat, we should put every
possible solution on the table, except for the status
quo. We should carefully consider all sources of
carbon-free energy - even nuclear power - to
make sure that we choose the approach most
likely to deliver success.
The nuclear industry has worked tirelessly over
the last decade to position itself as a solution to
global warming. 5 On the surface, the case looks
reasonable. Nuclear power is capable of producing
large amounts of electricity while emitting little
to none of the heat- trapping gases that cause
global warming. 6 Nuclear power advocates have
coalesced around a vision of building 100 new
reactors in the United States by 2030, doubling
the current fleet of reactors and moving America’s
economy away from its dependence on polluting
fossil fuels. 7
This report takes a closer look at how new
nuclear power could contribute to the fight
against global warming. The report focuses on
the need for solutions that deliver rapid and
substantial progress in reducing America's
emissions of global warming pollution within
the next 10 to 20 years; cut pollution in a cost-
effective way compared to other strategies; and
maintain reliable electricity service.
By these measures, nuclear power simply isn't
up to the job. Putting aside the unresolved
problem of how to safely dispose of nuclear
waste, the environmental impacts of mining and
processing uranium, the risk of nuclear weapons
proliferation, and the potential consequences of
an accident or terrorist attack at a nuclear power
plant, the nuclear industry simply cannot build
new reactors fast enough to deliver the progress
we need on a time scale that will make enough of
a difference. Moreover, new nuclear reactors are
far more expensive than other forms of emission-
free electricity. Investing in a new generation of
nuclear reactors would actually delay needed
progress and divert critical investment dollars
away from better solutions.
Despite billions in government subsidies made
available through the Energy Policy Act of
2005, and a streamlined permitting process at
the Nuclear Regulatory Commission, no new
nuclear reactors are yet under construction.
Looking at the state of the industry in 2009,
nuclear industry experts at the Massachusetts
Generating Failure
39
Institute of Technology warn that without more
government action to support the technology,
"nuclear power will diminish as a practical and
timely option for” reducing the odds of catastrophic
global warming . 8
This report concludes that government action to
address global warming would be better focused on
the wide range of other technologies that can deliver
emission reductions more quickly and cheaply
than nuclear power while also providing reliable
electricity service. Despite decades of generous
federal subsidies to the nuclear industry, nuclear
power is not now ready to address the challenge of
global warming - especially on the short timeline
required for meaningful action. Piling additional
subsidies or policy preferences upon the previous
largesse extended toward the nuclear industry would
only serve as a dangerous distraction in the fight to
prevent the worst impacts of global warming.
Fueled by global warming, a mountain pine beetle infestation has killed 6.5 million acres of forest in the western
United States. Preventing the most catastrophic impacts of global warming will require rapid and substantial
cuts in global warming pollution over the next 10 to 20 years. The nuclear industry simply cannot build new
reactors fast enough to deliver the progress we need. Investing in a new era of nuclear power would divert money
from more effective solutions. And nuclear power is not necessary for reliable electricity service.
Photo: iStockPhoto,
How Building Nuclear Power Plants Would Set America Back in the Race Against Global Warming
40
America Must Act Quickly to Limit
the Consequences of Global Warming
"We are faced with the fact that tomorrow
is today. We are confronted with the
fierce urgency of now. In this unfolding
conundrum of life and history, there is such
a thing as being too late. Procrastination
is still the thief of time. Life often leaves us
standing bare, naked and dejected with
a lost opportunity. The “tide in the affairs
of men” does not remain at the flood; it
also ebbs. We may cry out desperately for
time to pause in her passage, but time is
deaf to every plea and rushes on. Over
the bleached bones and jumbled residue
of numerous civilizations are written the
pathetic words: 'Too late'."
- Martin Luther King, April, 4, 1 967,
at Riverside Church in New York City
G lobal warming is rapidly changing
America's climate, driven largely by
combustion of fossil fuels for energy. 9
The country is becoming hotter. 10 Sea level is
rising. 11 Rainstorms and hurricanes are becoming
more intense. 12 Landscapes are changing - from
Western forests ravaged by drought, bark beetles
and fires, to the degradation of coral reefs along
the Florida Keys, to shifts in the timing of seasons
and in the habitable ranges of plant and animal
species across the country. 13
Should our emissions of global warming
pollutants continue unchecked, America and the
world face catastrophic consequences. Global
average temperatures could increase by as much
as 1 1.5° F by the year 2100 (depending on the pace
of the emissions increase). 14 Sea level could rise
by as much as 6.5 feet by the end of the century,
causing extensive coastal flooding. 15 Hurricanes
could become more severe. 16 And America could
experience extended periods of hot weather
and drought, punctuated by heavy downpours,
interfering with water supplies and agriculture
and exacerbating smog pollution. 17
To limit the impacts of global warming, America
must rapidly and substantially reduce its
emissions of global warming pollution. The more
global warming pollution that humanity emits
into the atmosphere, the greater the warming -
and the damage - that will become unavoidable.
Early action will help prevent the worst impacts
while also allowing greater flexibility to respond
to an already changing climate, and help lead
the world toward preserving a livable future. It
is in this context that we must evaluate potential
approaches to mitigate global warming and
focus on those approaches with the greatest
odds of success.
Generating Failure
41
Global Warming Threatens
the Health and Well-Being
of All Americans
Globa! warming poses a serious threat to the health
and well-beingof people across America and around
the world. Global warming is already changing
America's climate. And if we do not act quickly to
limit emissions of global warming pollution, the
consequences could be catastrophic.
Global Warming Is Rapidly
Changing America's Climate
According to the United Nations’ Intergovernmental
Panel on Climate Change, the evidence that humans
are altering the earth’s climate is “unequivocal.” 18 For
example:
■ Worldwide, temperatures have increased by
more than 1.4° F since pre-industrial times. 19
■ The oceans have absorbed 80 percent ofthe extra
heat in the climate system, causing the water to
expand. 20 Coupled with melting glaciers, this has
caused sea levels to rise by about eight inches -
with the rate of increase accelerating. 21
■ Hurricanes have become more intense, and
the frequency of extreme rain and snowstorms
has increased. 22
■ At the same time, droughts in many par ts of the
world have become longer and more severe,
especially in the tropics and subtropics. 23
These changes are also affecting the United States.
■ Rising temperatures are changing the timing
of the seasons and shifting the habitable area
for plant and animal species northward and
higher in altitude across the country. 24
■ Levels of carbon dioxide are increasing in the
air as well as the ocean, causing ocean waters
to become more acidic and contributing to
the decline of ocean ecosystems, including
a 50 to 80 percent decline in coral on reefs
along the Florida Keys. 25
■ Western forests are being ravaged by
drought and pine beetles. From the Rockies
to the Cascades, the pine beetle has killed
6.5 million acres of forest. 26 Milder winters
linked to global warming have increased
winter beetle survival from 10 percent to 80
percent, allowing the beetle population to
rise dramatically. 27 Simultaneously, hotter
summers have weakened the trees’ ability to
fight off beetles. 28
If Emissions Continue to Increase, the
Consequences Will Be Catastrophic
The more global warming pollution that humanity
emits, the more serious the consequences. And the
changes will be largely irreversible for a thousand
years after emissions stop. 29
On our current emissions path, humanity risks
increasing the average global temperature by 10°
F or more (above the pre-industrial era) by the
end of this century. 30 Warming on this scale would
have catastrophic consequences, including: 31
■ Extinction of as much as 70 percent of all
species on earth. 32
■ Acidic “dead zones” in the ocean that could
endure for thousands of years. 33
■ The loss of unique ecosystems such as the
Amazon rainforest. 34
■ Sea level rise of as much as 6.5 feet in the next
century, causing extensive coastal inundation
in areas such as south Florida and Louisiana
and increasing the risk of storm surge flooding
in major coastal cities. 35
■ Continuing sea level rise marching on for
thousands of years. The Greenland and West
Antarctic ice sheets could melt, raising sea
level by 30-40 feet. 36 Ultimately, sea level could
increase 250 feet, reaching levels associated
How Building Nuclear Power Plants Would Set America Back in the Race Against Global Warming
42
with the climate at the end of the Eocene era,
34 million years ago. 37
■ Widespread drought across as much as a
third of the globe, straining water supplies
and agriculture. 38 By mid-century, the
U.S. southwest could fall into permanent
drought exceeding even the severity of the
Dust Bowl era. 39
■ Extreme heat waves. Peak temperatures
greater than 120° F could threaten most of the
central, southern, and western United States
by the end of the century. 40
■ More intense hurricanes, driven by warming
seas. The number of severe category 4 and
5 hurricanes could increase from 13 to 17
worldwide per year by 2050. 41
■ More intense wildfires. By the end of the
century, wildfires in the West could be five
times as severe as they are today. 42 Each
degree in temperature rise could increase
the area burned in a typical fire by 300
percent, and more than double the costs of
protecting homes. 43
Additionally, the more pollution humanity emits,
the greater the risk that we will cross a critical
“tipping point,” accelerating climate change
beyond human control. For example, melting
permafrost threatens to release massive quantities
of methane, a potent global warming gas, from
decaying material now frozen underground.
Or, changes such as the current pine beetle
infestation in Western forests could transform an
ecosystem from one that absorbs carbon from the
atmosphere to one that emits carbon. 44 In other
words, the risk that global warming will cause
severe, unforeseen and uncontrollable impacts
increases with every pound of coal or gallon of
gas that humans burn.
To Limit the Consequences
of Global Warming,
America Must Swiftly and
Substantially Cut Emissions
of Global Warming Pollution
In order to minimize the impacts of global
warming, America must quickly and dramatically
cut its emissions of global warming pollution.
The international community has agreed to work
to limit global warming to 3.6“ F (or 2° C) above
temperatures in the pre-industrial era. 45 According
to current scientific understanding, to have even
odds of meeting this target, the concentration
of carbon dioxide in the atmosphere must not
rise above roughly 450 parts per million (ppm)
- and perhaps substantially less. 46 (Current
concentrations are already greater than 380
ppm. 47 ) Additional limits must be placed on other
types of heat-trapping gases.
This means that humanity can only emit so much
global warming pollution into the atmosphere
before the odds of limiting the temperature
increase to 3.6° F become increasingly unlikely.
This amount is our “carbon budget," or ultimate
limit on allowable pollution.
Science makes two critical points clear. The faster
we cut our emissions, the easier it will be to stay
within our carbon budget and the less risk we face.
Early action allows more flexibility to respond to
an evolving understanding of humanity's role in
shaping the climate, making a wider variety of
options available. Correspondingly, the higher
and later the peak in emissions, the harder we will
have to work to keep emissions within budget, the
higher the potential costs, and the greater the risk
that our options will run out.
Generating Failure
43
Figure 1 : Limiting Total Global Emissions of Carbon Dioxide to 1 Trillion Metric
Tons From 2000 to 2050 Would Yield a 75 Percent Chance of Limiting Warming
to 3.6° F (2° C) or Below 5 '
44
Total Emissions Must Not
Exceed Our "Carbon Budget"
According to current scientific understanding,
humanity as a whole can emit no more than a total
of 3.7 trillion metric tons of carbon dioxide from
the beginning of our history onward through the
next 500 years in order to have a 50-50 chance at
limiting global warming to an average temperature
increase of no more than 3.6° F (2° C) above the
pre-industrial era. 48
Humanity has already emitted more than 1.8
trillion metric tons of carbon dioxide pollution so
far. From now (2009) through 2050, we must emit
less than that same amount again in order to have
even odds at meeting the international target for
mitigating climate change. At current emission
rates, the world is on pace to exceed this "carbon
budget" in less than four decades - at which time
we will have committed the world to a future of
dangerous global warming. 49
To increase the odds to 75 percent that we will be
able to limit warming to 3.6° F or below, we will
have to accept a global carbon budget of 1 trillion
metric tons of carbon dioxide emissions during
the first half of this century. 50 (See Figure 1.)
Scientists note that the target may need to be
substantially lower, given the likelihood that our
understanding of human influence on the climate
will continue to evolve. And even warming of
3.6° F carries significant consequences and major
risks for human civilization. 52 Leading climate
scientists, including Dr, James Hansen of NASA,
have called for reducing atmospheric carbon
dioxide below current levels, which would require
reducing our fossil fuel emissions to zero as quickly
as possible. Then, we would have to develop and
deploy methods of removing pollution from
the atmosphere. 53 In this view, we have already
exceeded our carbon budget and must act with
even greater speed.
Early Action Matters
The most important thing we can do to address
global warming, then, is to cut our emissions
of global warming pollution as quickly and
sharply as we can, while laying the groundwork
for future reductions in the years to come. The
more rapidly we reduce emissions, the less risk
we assume, and the more room we leave to
maneuver in later years.
Recognizing the necessity of swift action, the
chief of the Intergovernmental Panel on Climate
Change, Rajendra Pachauri, has called on
developed nations to ensure that global emissions
peak no later than 2015. 54 Emissions must then
fall rapidly thereafter. A large panel of top United
Nations scientists and Nobel Prize winners has
called on developed nations to reduce emissions
of global warming pollution by 25 to 40 percent
below 1990 levels by 2020. 55
The world must then continue to slash emissions
rapidly, achieving cuts of at least 50 percent by
mid-century, and perhaps substantially more. 56
Developed countries with the largest capacity
to act will need to reduce emissions by 80 to
more than 95 percent. 57 Afterwards, the world
must then embark on a program to zero out all
emissions of global warming pollution, and very
possibly deploy technologies to remove carbon
dioxide from the atmosphere. 58
Because carbon dioxide can persist in the
atmosphere for well over 100 years, the timing
of emissions is less important than keeping
overall emissions within the carbon budget. 59 As
a consequence, if the world is unable to achieve
deep cuts in global warming emissions by 2020,
then the world will have to work harder and make
deeper and faster cuts in emissions before 2050.
Early action increases the odds that keeping
emissions within the overall budget will be
politically and technologically feasible.
Generating Failure
45
Below 2005
How Building Nuclear Power Plants Would Set America Back in the Race Against Global Warming
46
The United States Plays a Critical Role
Because the U.S. is responsible for far more of the
global warming pollution now in the atmosphere
than any other country, the degree of emission
reductions required here will be greater than in
less-developed countries. 60
Early Progress Is Most Likely to
Come from the U.S. Electricity' System
To meet our goals for limiting the consequences
of global warming, we must achieve rapid, deep
and sustained cuts in emissions from the U.S.
electricity system. For this reason former Vice
President Al Gore has challenged the United
States to switch its entire electricity system to run
on clean energy instead of fossil fuels by 2018, and
Displacing coal-fired powerfrom the U.S. electricity system is one of
the most likely sources of early cuts in global warming pollution.
Photo: Kenn Kiser.
to ultimately reduce emissions of global warming
pollution 90 percent by mid-century. 61
The U.S. electricity system is one of the most
likely sources of early cuts in global warming
pollution. About 40 percent of total U.S. carbon
dioxide emissions come from the generation of
electricity. 62 About 80 percent of these emissions
come from coal - despite the fact that coal provides
just under half of U.S. electricity. 63 Preventing
the construction of any new coal-fired power
plants and phasing out the use of coal in existing
power plants would cut emissions substantially.
Furthermore, relative to the transportation sector
with its millions of gasoline-powered engines,
cuts in the electricity sector will be easier and
cheaper to obtain in the near term, and may set
the stage for transitions such as shifting vehicle
fuel from gasoline to electricity. 64
There are many low-carbon options for electricity
generation and broad public consensus on
shifting America away from its dependence on
fossil fuels. 65 Resources with the potential to
deliver emission cuts span the spectrum from
nuclear power to energy efficiency and from
carbon capture and sequestration to clean energy
sources that never run out, such as wind, solar
and geothermal power.
Given the importance of quick and effective action
to reduce America’s emissions of global warming
pollution, it is crucial that we invest in the options
likely to deliver the best results.
Generating Failure
47
Nuclear Power Is Not a
Solution to Global Warming
N uclear power is not necessary to provide
reliable, low-carbon electricity for the
future. Far from being a solution to
global warming, a major national investment in
nuclear power would actually set America back
in its efforts to reduce pollution. Even building
100 nuclear reactors by 2030 would be too slow
to make enough of a difference, and too expensive
compared to other sources of clean, emission-free
electricity. And that investment - which would
likely run into the trillions of dollars - would
foreclose opportunities to invest in other clean
technologies with the potential to deliver greater
emission reductions, faster.
Nuclear Power Is Too Slow
to Reduce Global Warming
Pollution in the Near-Term
Building 100 new nuclear reactors would happen
too slowly to reduce global warming pollution in
the near-term, and would actually increase the
scale of emission cuts required in the future.
At best, the nuclear industry could have a new
reactor up and running by 2016, assuming that
construction could be completed in four years.
This pace would be faster than 80 to 95 percent
of all reactors completed during the last wave
of reactor construction in the United States. 70 If
construction follows historical patterns, it could
take nine years after a license is issued before the
first reactor is up and running - into the 2020s.
Under this very plausible scenario, new nuclear
power could make no contribution toward
reducing U.S. emissions of global warming
pollution by 2020 - despite the investment
of hundreds of billions of dollars for the
construction of nuclear power plants. And even
if the industry completed 100 new reactors by
2030, which is highly unlikely, these reactors
would reduce cumulative power plant emissions
of carbon dioxide over the next two decades by
only 12 percent below business as usual, when a
reduction of more than 70 percent is called for. In
other words, 100 new nuclear reactors would be
too little, too late to successfully meet our goals
for limiting the severity of global warming.
At Best, No New Reactors
Could Be Completed Until 2016
No new reactors are now under construction
in the United States. The nuclear industry will
not complete the first new reactor until 2016,
optimistically assuming construction will take
four years after regulatory approval.
From application development to operation,
the nuclear industry expects that a new nuclear
reactor would take 10 years to build. 71
■ Construction cannot begin on any new
reactors until the U.S. Nuclear Regulatory
Commission (NRC) approves a reactor
design and issues a license. This is not likely
to happen before 2011 or 2012.
■ Todate, reactor manufacturers have submitted
plans for three new types of nuclear reactor
designs for certification. The NRC expects
official hearings around the suitability of
these designs to begin in 2010 or 2011, with
decisions arriving later. 72 One type of reactor
is already certified through 2012, but then
must be re-certified. 73
■ Power companies have submitted applications
to build and operate 26 new reactors, with
as many as eight more expected. 74 As of
How Building Nuclear Power Plants Would Set America Back in the Race Against Global Warming
48
October 2009, the NRC is actively reviewing
applications for 22 of these reactors. 75 The
nuclear industry expects this process to take
up to four years for the first reactors, followed
by public hearings and a rulemaking. 76 Later
reactors may take two to three years. 77
The nuclear industry estimates that construction
work on a new reactor could be completed in
Figure 3: Construction Times Were Consistently
Underestimated During the Last Wave of U.S.
Nuclear Reactor Deployment 87
12
<U
JE
v
cn
2
<u
10
8
6
4
*■■“ Actual Construction Time
— - Initial Industry Estimate
1966-1967 196B-1989 1970-197T 1972-1973 1974-1975 1976-1977
Year of Construction Start
four years. 78 If the NRC begins to issue licenses in
2012, that would imply that as many as three new
reactors could be online by 2016, with two more
by 2018. 79
However, this schedule could very well be too
optimistic.
The Nuclear Industry Has
Consistently Overestimated How
Fast Reactors Can Be Built
During the last wave of nuclear power plant
construction in the United States (from the late
1960s into the early 1990s), the nuclear industry
predicted that reactors could be built in 4-6 years.
However, the average reactor ended up taking
nine years to complete. 83 In other words, actual
construction times were almost double projections
- consistently - across several decades of reactor
construction work. (See Figure 3.)
Also notable is the fact that later reactors tended
to take longer to complete than the first reactors.
(See Figure 4.) This pattern is the opposite of a
typical learning curve, where later units often
can be completed faster and for less cost as an
industry gains efficiency and economies of scale -
especially with simple products manufactured in
high volumes. 84 Nuclear reactors are big, complex,
and difficult to manufacture in high volumes. In
addition, many reactor projects suffered from
unanticipated quality control problems during
construction. 85
Generating Failure
49
Today, the nuclear industry promises that
new, standardized designs and technological
advances will enable reactor construction to
proceed quickly, without the mistakes of the
past. 86 However, recent experience with reactor
construction in Finland and France - two of the
only active nuclear construction projects in the
Western world - raise the very real possibility
that nothing has fundamentally changed.
A New Generation of U.S. Nuclear
Reactors Would Likely Experience
Construction Delays
A new generation of nuclear reactors in the
United States would likely face delays that could
push construction times well beyond four years.
A reactor now under construction in Finland
exemplifies this risk. The reactor is now at least
three years behind schedule after a series of
quality control failures, and its builder, a French
government-owned nuclear developer called
Areva, is no longer committing to a specific target
date for completion. 89
The reactor is the first of its kind in the world,
incorporating advanced design features the industry
had hoped would facilitate rapid completion and
keep costs in check. 90 However, the project has
suffered from delays and cost overruns, much like
past nuclear reactor projects.
Areva and its contractors have made a variety of
costly mistakes during construction. Welds for
the reactor's steel liner were flawed, and had to
be redone. Water coolant pipes were revealed as
unusable. And concrete poured in the foundation
was suspect, with too much moisture content to
meet safety requirements. 91
While the project was initially scheduled
for completion in summer 2009 (a four-year
construction time), Areva has scrapped the
timeline. 92
As of September 2009, the project is $3.3 billion
over budget. 93 Areva and the Finnish utility TVO are
locked in a dispute over who will be responsible for
the cost overruns. 94 Meanwhile, a coalition of Finnish
industries estimates that the delays will indirectly cost
electricity users $4 billion in higher power bills. 95
The Finnish reactor is not the only nuclear project
behind schedule. A second Areva reactor being
built in France is at least nine months behind
schedule. 96 Project coordinators admitted in
late 2008 that the project was 20 percent over
budget. 97 The last four reactors built in France
took an average of 10.5 years to complete. 98
If a new generation of U.S. nuclear reactors faces
delays approaching this scale, it is possible that no
new reactors could be up and running before 2020.
While new reactors are under construction, the
United States would continue to operate existing
dirty power plants, making it impossible for the
nation to meet near-term targets for reducing
global warming pollution.
Figure 4: During the Last Wave of U.S. Reactor
Deployment, Construction Duration Tended to
Escalate OverTime**
25
O
1963 1965 1967 1969 1971 1973 1975 1977 1979
Date of Construction Start
How Building Nudear Power Plants Would Set America Back in the Race Against Global Warming
50
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Figure 5: Projected Cumulative Electric Sector
Emissions of Global Warming Pollution after 2010
with No Action or 1 00 New Reactors Built by 2030
Nuclear power is too slow to deliver enough pollution cuts in
the next two decades. Even if the nuclear industry managed to
complete 100 new reactors in the United States by 2030, nuclear
power could still only reduce total electric sector emissions 12
percent below forecast levels by 2030, leading to a higher and later
peak in emissions. As a result, America would exceed its 2010 -
2050 power plant emissions budget by 2025 - 25 years too early to
meet our goals for reducing the severity of global warming.
Even Without Delays, the Nuclear
Path Is Too Slow to Keep Global
Warming Emissions Within Budget
Even with generous assumptions about speed
and effectiveness, building 100 new reactors in
the United States by 2030 will not reduce global
warming pollution fast enough to keep our
carbon emissions within budget - and therefore
not fast enough to meet our goals for limiting the
consequences of global warming.
First, assume that the nuclear industry can
deliver on its ambitious timelines and successfully
complete 100 new reactors (about 100 gigawatts
of generation capacity) in two decades. Then,
assume that every kilowatt-hour of nuclear power
would displace coal, the largest source of carbon-
intensive power generation. Finally, assume
that next-generation nuclear reactors operate
at an average of 90 percent of full capacity - an
upper-bound estimate from a group of nuclear
technology experts. 106 Under these best-case
conditions, building 100 active nuclear reactors
could prevent more than 750 million metric
tons of carbon dioxide (MMTC0 2 ) pollution in
2030. Overall power plant emissions would be 20
percent below 2005 levels.
Generating Failure
51
However, these nuclear reactors would not be ■
able to reduce emissions while they are under
construction. In other words, the nuclear path
delivers a late start in cutting pollution. As a
result, building 100 new reactors could only
reduce cumulative power plant emissions of
global warming pollution by 12 percent over the
next two decades compared to doing nothing.
(See Figure 5.) On this path, America would still
exceed its 2010-2050 electric power emissions
budget by 2025 - 25years too soon. (See “Setting
a Carbon Budget for the United States” on page 13
for a brief explanation of the source of the budget
line represented in Figure 5.) 8
In conclusion, building 100 new nuclear reactors
by 2030 would be too little, too late when it comes
to preventing global warming pollution. By leading
to a higher and later peak in emissions, using
nuclear power as a primary strategy to address
global warming would ensure that the United
States exceeds its 2010-2050 power plant emissions
budget. As a result the nuclear path would cut into
what little margin of error we have, increasing the
risk of catastrophic global warming.
Clean Energy Solutions Can
Reduce Pollution Much Faster
Than 100 New Reactors
Clean energy solutions have a significant
advantage over nuclear power when it comes to
reducing global warming pollution. Individual
clean energy measures are small - as simple as
installing a new light bulb in a home or erecting
a single wind turbine. Small means fast. Millions
of individual workers could participate in a clean
energy transition at the same time. And many
individual clean energy measures can add up to a
rapid, large-scale cut in emissions.
Energy Efficiency and Clean Energy Measures
Can Be Deployed Quickly
Individual energy efficiency and clean energy
measures can be implemented in a matter of
minutes to just a few years. Each individual "
measure delivers results right away. For example:
Designing and building a super energy-
efficient building requires little to no extra
time compared to the effort required to
build and design a standard building. Simple
changes in design and construction can yield
homes, institutions, and commercial buildings
that use 70 percent less energy than standard
structures. 107 Adding small-scale clean energy
systems - solar photovoltaic panels or small
wind turbines, for instance - can yield buildings
that produce as much energy as they consume
over the course of an entire year.
Retrofitting an existing structure to achieve
higher energy performance can take a matter
of days to months to a few years. Contractors
can weatherize an existing home in an average
of three days. 108 Installing a home solar
photovoltaic system typically takes less than
a week. 109 Larger businesses or institutions
can upgrade lighting, heating and cooling
equipment, or mechanical systems in a matter
of months to just a few years. 110
With available transmission infrastructure,
today’s power companies can build a utility-
scale wind farm in as little as one year, and a
concentrating solar thermal power plant in as
littleas two to threeyears after groundbreaking . 1 1 1
The components of these systems are largely
modular. Making a bigger wind farm simply
requires installing more wind turbines, and
making a larger solar power plant basically
requires installing more mirrors or more steam
turbines. The modular and scalable nature of
construction makes projects simple relative to
traditional coal-fired or nuclear power plants,
and better able to take advantage of economies
of scale. Wind, concentrating solar thermal, and
geothermal energy, however, must be integrated
into the transmission grid. Projects that require
major new power lines to be built could take
longer to complete. (See “The Importance of
Grid Modernization” on page 20.)
Production of large amounts of energy efficient
products and renewable energy technologies
How Building Nuclear Power Plants Would Set America Back in the Race Against Global Warming
53
three new nuclear reactors. 119 Wind energy
experts predict that wind will become the
dominant source of new electric generating
capacity in 2009-2012, with 36,000 to 40,000
MW installed (the energy equivalent of 10-12
new nuclear reactors). 120
■ The concentrating solar power industry is
actively installing facilities in the southwestern
United States, with 8,500 MW of generating
capacity expected to be online by 20 14. 121 This
capacity is the rough energy equivalent of two
to three nuclear reactors. 122 Rooftop solar
photovoltaic panels are booming as well, with
California alone on pace to install 3,000 MW
by 2017. 123
With the Capital Investment
Required to Build 100 Nuclear Reactors
in the Next Two Decades, Clean Energy
Could Deliver Double the Impact
Through 2030, investing in clean energy could
deliver double the impact of a comparable
investment in nuclear power. The speed at which
small, modular clean energy measures can be
deployed means that capital invested in clean
energy can begin preventing pollution right
away, making a bigger overall difference in the
next two decades.
Cost estimates for new nuclear reactors vary
widely, since none have been built in the U.S. in
more than 30 years. 129 The U.S. Department of
How Building Nuclear Power Plants Would Set America Back in the Race Against Global Warming
54
Energy has put forward one of the most optimistic
forecasts of possible nuclear reactor costs over the
next two decades, projecting that the capital cost
of reactor construction could be as low as $2,400
per kilowatt (kW) by 2030 (in 2007 dollars). 130
(Many independent experts find this estimate
implausible. 131 ) However, even if building a nuclear
reactor turns out to be this inexpensive and quick,
100 new nuclear reactors by 2030 could - at best -
prevent the same amount of pollution as investing
that same capital into clean energy solutions such
as energy efficiency. (See Figures 6 and 7.)
On the other hand, if building a new nuclear
reactor turns out to be an expensive and time-
Figure 6: Potential Reduction in Total Electric
Sector Emissions of Global Warming Pollution,
2010-2030, from 100 New Reactors Built by
2030 vs. an Equivalent Capital Investment in
Clean Energy
Ol
f §
20,000
15,000
$ 6 -
evented Global
Emissions, 201
(MMTCOj
10,000
5,000
a
0
100 Nuclear Reactors by Equivalent Capital
2030 Investment in Clean Energy
Investing in clean energy can deliver greater progress, faster, than
a comparable investment in nuclear power. Building 100 new
nuclear reactors by 2030 could prevent about 6 billion metric tons
of carbon dioxide pollution. However, putting that same capital
investment into clean energy solutions instead would prevent 6
to 13 billion metric tons of pollution (with the range representing
uncertainty over how much a new nuclear reactor would cost, since
none have been built in the United States in more than 30 years).
Comparing Nuclear
Cmtisiimatm
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consuming endeavor, like many reactors built in
the 1970s, reactors could cost as much as $10,000
per kW (2008 dollars). 132 Putting that level of
capital investment into energy efficiency and
renewable energy technologies instead would
prevent three times as much pollution by 2030.
(See Figures 6 and 7.)
At a mid-range reactor cost estimate of $6,250 per
kW (2008 dollars), putting an equivalent investment
into energy efficiency and renewable energy would
prevent twice as much pollution by 2030 as building
100 new reactors. 133 (See Figures 6 and 7.) (See the
Methodology section for more details.)
To Keep Power Plant Emissions Within
Budget, America Will Have to Do Much More
Power plant emissions are on pace to exceed
the U.S. power sector emission budget by 2024
with no further action. To keep emissions from
exceeding this budget, the nation must respond
swiftly and decisively.
In the next two decades, clean energy
deployment equal to the capital investment in
100 new nuclear reactors could reduce global
Generating Failure
55
warming pollution by 6 billion to 18 billion
metric tons of carbon dioxide - 11 to 35 percent
below forecast levels. However, even this level
of clean energy deployment that would not be
enough to keep U.S. power plant emissions
within budget. (See Figure 7.) America will
have to do much more to reduce power plant
emissions within the next 20 years to limit the
worst consequences of global warming.
Keeping power plant emissions within this
budget would require reducing emissions by
more than half in the next 10 years, and then
reducing emissions by 95 percent by mid-
century. Achieving progress on this scale will
require a level of effort approaching that called
for by Al Gore when he challenged the nation to
end its dependence on fossil fuels for electricity
generation within a decade. 134
Quick Action Through Clean Energy Can
Demonstrate International Leadership
If the United States chooses nuclear power as its
primary strategy to reduce emissions of global
Figure 7: Projected Cumulative Electric Sector Emissions of Global Warming
Pollution after 2010 with No Action, 1 00 New Reactors Built by 2030 or an
Equivalent Capital Investment in Clean Energy
60,000
Reference Case
2010 2015 2020 2025 2030
Clean energy solutions can deliver results faster than nuclear power. With the up-front capital investment
required to build 100 new nuclear reactors, America could achieve twice as much by investing in clean energy
instead. (Given the wide range of uncertainty over the cost of a new nuclear reactor, clean energy could at least
equal the performance of new nuclear power by 2030, and at most perform three times better. See the shaded
wedge in the figure above.) However, even this level of clean energy deployment would not be enough to keep
U.S. power plant emissions within budget. America will have to do much more to reduce power plant emissions
within the next 20 years to limit the worst consequences of global warming.
How Building Nuclear Power Plants Would Set America Back in the Race Against Global Warming
56
warming pollution, it is likely that the nation
would have little or nothing to show for it in terms
of real emission reductions from the electric
power sector in the next 10 years. The failure of
the United States to demonstrate real emission
reductions would erode U.S. leadership in
addressing global warming and likely reduce the
international community's appetite for action.
We need other countries across the world to act
rapidly and forcefully alongside the United States in
order to have a chance at limiting global warming to
3.6° F above the pre-industrial era - thus controlling
the severity of global warming impacts.
Showing a commitment to urgent action by
adopting a clean energy path, however, could
demonstrate more U.S. leadership, bringing the
international community closer to achieving an
ambitious, binding and firm agreement to fight
global warming. Urgent action to deploy clean
energy can also help America take a leadership
role in building a clean technology and clean
energy economy. 135
Choosing to Build New
Reactors Would Divert
Resources from More Cost-
Effective Strategies
Choosing to build new reactors would divert
resources from more cost-effective strategies.
Building 100 new nuclear reactors could have an
up-front cost on the order of $600 billion (with
a possible range of $250 billion to $1 trillion). 136
Investing this money in reactor deployment
would foreclose opportunities to pursue cheaper
and faster options.
New nuclear reactors would be far more costly
than other forms of emission-free electricity.
Even the most optimistic estimates for the
average cost of power from a new nuclear reactor
are 300 percent higher than the cost of energy
efficiency or the cost of co-firing biomass in an
existing power plant, and well above renewable
technologies like wind power. Moreover, any
new nuclear reactors won't be operational until
well into the next decade, whereas clean energy
sources can be deployed now.
The cost advantages that clean energy has over
nuclear power are likely to become even more
pronounced over time, while we wait for the nuclear
industry to finish its first new reactor. According to
Moody’s Investor Service, “...nuclear generation has
a fixed design where construction costs are rising
rapidly, while other renewable technologies are still
experiencing significant advancements in terms of
energy conversion efficiency and cost reductions." 137
Building 100 New Nuclear Reactors
Would Divert Resources from
Cheaper and More Effective Solutions
If both nuclear power and clean energy
technologies such as renewable energy and
energy efficiency improvements can reduce global
warming pollution, why can’t we just pursue both
paths - reducing emissions now through clean
energy and in the future with nuclear?
In a world of unlimited resources, such a path
would be conceivable. But in the real world of
public policy, governments must make choices
about how to allocate limited resources. Moreover,
to retain public support for efforts to reduce global
warming pollution, government will need to
demonstrate that it is acting in ways that minimize
the costs of emission reductions and deliver the
greatest benefit for the smallest expenditure.
Recent estimates for the up-front cost of building
a new nuclear reactor suggest that building 100 of
them could require an up-front investment on the
order of $600 billion. 138
However, the capital cost of a new nuclear plant is
only part of the full story. Any up-front investment
in nuclear power would lock in additional
expenditures across decades. Once a plant is
Generating Failure
57
built, the price of the electricity it generates will
reflect the ongoing need to pay off debt; the
cost of operating and maintaining the plant; the
cost of fueling the plant with uranium; the cost
of decommissioning the plant and disposing
of the waste; and the cost of transmitting and
distributing the electricity to consumers. For 100
reactors, these costs would add up to additional
trillions over a period of decades.
An investment in energy efficiency would deliver
vastly superior results. Investing in energy
efficiency actually pays us back with ongoing
savings on electricity bills. Efficiency measures
are almost always cheaper even than operating
existing power plants. For example, analysts
at the consulting firm McKinsey & Company
estimate that investing $520 billion in energy
efficiency measures would eliminate $1.2 trillion
in waste from the U.S. economy, saving citizens
and businesses nearly $700 billion (in net
present value terms). 139 In other words, energy
efficiency could provide the same level of impact
as building 160 nuclear reactors in the next ten
years - at net savings. 140
An investment in renewable sources of power
can deliver carbon-free electricity for much
less cost than nuclear power. Many types of
renewable energy have the advantage of zero
fuel costs, since wind and sunlight and the
earth's heat are free. Other types of clean
energy, such as solar photovoltaic panels, have
the advantage of being located near where the
energy will be used, minimizing the cost of
transmitting and distributing electricity. And
these technologies require no special waste
handling or decommissioning.
Compared to clean energy solutions, nuclear
power is extremely expensive. The total extra
cost to the U.S. economy of building 100 new
nuclear reactors, above and beyond a least-cost
dean energy approach, could fall in the range of
$1.9 to $4.4 trillion over the entire lifetime of the
reactors. 141
"The failure of the U.S. nuclear power program
ranks as the largest managerial disaster in
business history, a disaster on a monumental
scale. The utility industry has already invested
$125 billion in nuclear power, with an
additional $140 billion to come before the
decade is out, and only the blind, or the biased,
can now think that the money has been well
spent. It is a defeat for the U.S. consumer and
for the competitiveness of U.S. industry, for the
utilities that undertook the program and for the
private en terprise system that made it possible."
"Nuclear Follies,” a cover story in
Forbes Magazine, February 1 1, 1 985.
Cost Estimates for Nuclear Power Continue to Rise
In 2003, experts at the Massachusetts Institute of
Technology and Harvard concluded that "today,
nuclear power is not an economically competitive
choice.” 142 The researchers predicted that without
subsidies and financial support for the nuclear
industry, "nuclear power faces stagnation and
decline.” 143 The U.S. Congress responded by
streamlining the permitting process at the Nuclear
Regulatory Commission and authorizing billions
in new subsidies through the 2005 Energy Policy
Act. However, in 2009, the MIT researchers
took another look at the nuclear industry and
found that despite the new support, "increased
deployment of nuclear power has been slow both
in the United States and globally ....” 144
How Building Nuclear Power Plants Would Set America Back in the Race Against Global Warming
58
High costs are a major obstacle in the way of
building new reactors. In the past decade, cost
estimates for new nuclear power plants have
only escalated.
In the early 2000s, nuclear industry executives
estimated that construction costs for building a
new nuclear reactor could approach $1 ,500 per kW
of power generating capacity, plus finance costs. 145
They said the lower costs would make nuclear
power competitive with coal and natural gas.
However, these early estimates have turned out
to be overly optimistic. Recent estimates for the
average cost of electricity from a new nuclear
plant over its entire lifetime are four times higher
than this initial projection that promoters of a
"nuclear renaissance” put forward in the early
part of the decade. 146
more than seven times higher than cost estimates
from early in the decade. 147 Areva offered its
technology for $23 billion - or $7,400 per kW
- but its bid was deemed non-compliant, likely
because it would not guarantee the price. 148
Both of these quotes were more than double the
threshold for competitiveness. 149
Nuclear Reactors Tend to Run Aground on
Skyrocketing Construction Costs
High and escalating bids for new nuclear reactor
projects should not be a surprise. Nuclear reactor
construction projects in the U.S. have regularly
run aground on skyrocketing construction costs.
Of 75 nuclear reactors completed between 1966
and 1986, the average reactor cost more than
triple its original construction budget. 150 Later-
built reactors came in as much as 1,200 percent
over budget. 151
No nuclear companies have signed a contract
guaranteeing a price for a new nuclear reactor.
When Canada asked for guaranteed cost bids
to build two new reactors, the results blew far
past expectations. The only company willing to
guarantee its work quoted a price of $26 billion
to build two new reactors - or $10,800 per kW -
Figure 8: Actual Capital Costs of Completed
U.S. Nuclear Reactors (in 2004 Dollars)’ 53
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Economists commonly expect that new products
and technologies become cheaper over time,
as companies gain experience and develop
economies of scale. However, in the case of the
last generation of nuclear power in the United
States, the opposite proved to be true. The first
nuclear reactors ever built were among the least
expensive, while costs spiraled wildly out of control
in the final decades of reactor construction, (See
Figure 8.) For plants beginning operation in the
late 1970s and onward, inflation-adjusted capital
costs escalated from just under $2,000 per kW to
more than $10,000 per kW (in 2004 dollars). 152
Seen through the lens of history, nuclear industry
predictions that new designs and modular
construction techniques will bring costs down
appear overconfident. 154 Developing new nuclear
power plants will likely remain prone to high cost
"surprises” and increased financial risk for power
companies and their customers. 155 Due to the large
amount of money required to build an individual
reactor, the investment ratings firm Moody’s calls
nuclear construction a “bet the farm risk" for a
typical utility. 156
Generating Failure
59
Nuclear Power Is More
Costly than Other Forms of
Emission-Free Electricity
Power from a new nuclear reactor would be
more costly than other forms of emission-free
electricity. Recent estimates for the average cost
of electricity from a new nuclear power plant over
its entire lifetime range from a low of 8 cents to
a high of 30 cents per kilowatt-hour (kWh), with
the bulk of estimates failing between 12 and 20
cents per kWh, 157 For many of these estimates,
add another 2 cents per kWh to transmit and
distribute the electricity from the nuclear plant to
the customer.
Vast amounts of dean energy are available - now
- at far less cost. 158
■ Energy from a new nuclear reactor would be
two to six times more expensive than saving
electricity through efficiency - including
utility and consumer investment. Across
the country, the average utility cost of saved
energy is 2.5 cents per kWh, three to four
times cheaper than building any kind of
new power plant. 159 Including consumer
contributions to efficiency measures, the
average total resource cost of efficiency is
around 4.6 cents per kWh. 160 Analyses of
future energy efficiency potential typically
find vast available resources with average
utility lifetime costs of around 4 cents per
kWh in the residential sector and 2 cents per
kWh or less in the commercial and industrial
sectors. 161 Moreover, as the scale and scope
of energy efficiency programs increase, they
tend to become even more cost effective. 162
■ Combined heat and power and recycled
energy technologies are also extremely cost-
effective sources of electricity. Recycled
energy technologies can generate electricity
for about 3 cents per kWh. 163 Combined cycle
industrial heat and power installations can
generally produce power for 4.5 to 5.5 cents
per kWh, including credit for the value of
useful heat that the generators also produce. 164
And smaller building-scale CHP technology
can deliver electricity for less than 6 cents per
kWh, again counting the value of the useful
heat also produced by the generator. 165
■ Energy efficiency, distributed solar power,
and combined heat and power have the added
advantage of saving or generating energy near
where it will be used, avoiding transmission
and distribution costs, In addition, saving or
generating energy locally minimizes electricity
losses that can occur while transporting
electricity from a distant power plant.
Large potential supplies of clean energy from
wind, solar, biomass and geothermal sources are
also available - now - at costs well below estimates
for new nuclear power. For example:
■ America’s entire electricity needs could be met
by the wind blowing across the Great Plains or
the sunlight falling on a 100 mile square patch
of the desert Southwest, or a tiny fraction of
the natural heat just beneath the surface of
the earth anywhere across the country. 166
Diverse, locally-based resources are available
in every state. Even the southeastern United
States has enough biomass, wind, and low-
impact hydroelectric resources to meet 25
percent of its electricity needs within the next
two decades. 167
■ The U.S. Department of Energy (DOE)
estimates that wind energy resources across
the U.S. as a whole could produce more than
1.5 million GWh per year for between 6 and
10 cents per kWh (2006 dollars). 168 (This
price includes estimated transmission costs,
assuming that the existing grid has 10 percent
spare capacity that could be used for wind, and
that appropriate planning will allow new lines
to be constructed as needed.) This amount
of wind would be the energy equivalent of
190 nuclear reactors. 169 DOE estimates that
generating 20 percent of America's electricity
supply with wind by 2030 would cost the
How Building Nuclear Power Plants Would Set America Back in the Race Against Global Warming
60
average household just 50 cents per month
more compared to sticking with coal- and
gas-fired power - and excluding the benefits
of cleaner air and conserved water. 170
■ The California Public Utilities Commission
estimates that in the western United States: 571
♦ Nearly 200,000 G Wh per year of renewable
electricity could be delivered locally for 9
cents per kWh or less;
♦ An additional 200,000 GWh per year of
renewable electricity could be locally
delivered at costs of 10 cents per kWh or
less; and
♦ Well over 500,000 GWh per year of
additional renewable electricity could be
delivered locally at a cost of 12 cents per
kWh or less.
Electricity from these renewable resources - the
energy equivalent of more than 1 10 nuclear reactors
- would be available at 8 to 12 cents per kWh
delivered, half to two-thirds of a mid-range estimate
for the cost of power from a new nuclear power
plant. 172 Developing U.S. renewable energy and
energy efficiency resources could save Americans
more than $200 billion on energy bills by 2020. 173
Research done for the California Energy
Commission (CEC) in 2009 provides a relatively
recent, apples -to -apples comparison of the
estimated costs of different gene ration technologies
with an in-service date of 2018, a decent guess as
to when the first nuclear reactors might become
available. 175 The estimates are partially specific to
western states, and include the effects of some tax
and incentive policies now authorized through that
year (but not the renewable energy production tax
credit, which is currently set to expire by 2013).
These factors aside, the research gives a general
idea of how generation technologies stack up.
Many additional studies, using different starting
assumptions, support the conclusion that energy
efficiency and many forms of renewable power are
expected to be substantially more cost-effective
than nuclear power. 170
The CEC figures also exclude solutions like energy
efficiency, biomass co-firing and combined heat
and power, so this report draws on other sources
to include them. Finally, this report does not
consider possible intermediate solutions such as
replacing coal-fired power with greater utilization
of existing natural gas-fired power plants, which
are also likely to be more cost-effective ways to
prevent carbon emissions than building new
nuclear plants.
Per Dollar Spent, Clean Energy
Is More Effective at Preventing
Pollution than New Nuclear Power
In at least the next six years, new nuclear power
cannot be obtained in the United States at any
price. However, many other energy technologies
are available now that can deliver cost-effective
reductions in pollution. Recent estimates for
the cost of a new nuclear power plant place it
well above many alternatives, including energy
efficiency, combined heat and power, wind power
(on land and off shore), biomass, landfill gas,
geothermal, some types of solar thermal power
and natural gas combined cycle power. 174
In 2018, the CEC projects that new nuclear power
will be more costly than most other forms of low-
emission electricity, whether financed by a public
utility, an investor-owned utility, or a merchant
generator. 177 Under investor-owned utility
financing, per dollar spent (over the lifetime of
the technology), energy efficiency would be five
times more effective at preventing global warming
pollution, and combined heat and power (in
which a power plant generates both electricity
and heat for a building or industrial application)
would be greater than three times more effective.
(See Figure 9.) Even without the benefit of
the production tax credit in 2018, biomass,
geothermal and land-based wind energy will be
Generating Failure
61
more than twice as effective, and offshore wind
will be on the order of 40 percent more effective.
Under merchant financing terms, nuclear fares
even more poorly, with CEC expecting both solar
thermal and solar photovoltaic power to be more
cost-effective ways to reduce pollution.
By 2018, solar photovoltaic power should be
comparable to a new nuclear reactor in terms of
its per-dollar ability to prevent global warming
pollution. However, solar power is falling in price
far faster than any other generation technology.
Solar prices have fallen by more than 80 percent
Figure 9: Comparative Ability of Electricity Technologies to Prevent Global
Warming Pollution, per 201 8 Dollar Spent over Technology Lifetime- Online in
201 8, Merchant Financing Terms 178
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By 2018, a reasonable estimate for the first date a new reactor could be online, nuclear power will be among the
least cost-effective options for reducing global warming pollution. Per dollar spent, nuclear power would be less
effective than other low- or zero-emission energy solutions. Efficiency, combined heat and power, wind power,
geothermal energy, biomass combustion, small scale hydropower and offshore wind all outperform nuclear.
(For simplicity, this figure assumes that power from these new sources at scale would displace an average unit
of electricity from the existing U.S. electricity grid. Error bars represent a possible range of values for each
technology, given the range of resource quality and location, and uncertainty around cost estimates. See the
Methodology section for more details.)
How Building Nuclear Power Plants Would Set America Back in the Race Against Global Warming
62
since 1980. J79 And prices continue to decline as
public policies encourage growth in capacity
for solar panel manufacturing, distribution
and installation. 180 Recent cost improvement is
apparent in utility decisions to build nearly 1,000
MW of large-scale solar photovoltaic power
plants in Florida and California - 10 times bigger
than any now in service across the world. 181
In fact, recent analysis by the investment firm
Lazard implies that thin-film solar photovoltaic
and solar thermal power technologies, with
existing incentives, are already competitive with
and even ahead of nuclear power. 182 Lazard also
highlights biomass co-firing - in which an existing
coal-fired power plant replaces up to 15 percent
of its typical fuel with plant matter - and landfill
gas as additional cost-effective options. 183
The fact that clean energy is more cost-effective than
new nuclear reactors is reflected in the conclusion
of a recent report by the European Renewable
Energy Council, the German Aerospace Center and
Greenpeace, which shows that currently available
clean energy technology could be deployed in
the United States to deliver massive reductions
in global warming pollution - at half the cost
and with twice the job creation as an equivalent
amount of nuclear and coal-fired power. Similarly,
the non-profit Nuclear Policy Research Institute
and the Institute for Energy and Environmental
Research have published a report demonstrating
how the United States can create an economy with
zero emissions of global warming carbon dioxide
pollution within 30 to 50 years at a reasonable cost,
without nuclear power. 184
What Could an Equivalent Capital
Investment in Clean Energy Achieve?
Investing $600 billion could potentially get us 100
new nuclear reactors by 2030. Alternatively, if we
invested that money in clean energy solutions,
we could get the double the impact, without the
drag on the economy that the high cost of nuclear
power would impose.
At an optimistic reactor cost forecast used
by the Energy Information Administration of
around $2,500 per kW of capacity (see page
22), building 100 new reactors would cost $250
billion up-front. Investing that same amount
of capital in energy efficiency could reduce
Americas electricity consumption by about 12
percent below the reference case by 2030. 185
This level of investment in energy efficiency
would deliver emission reductions equal to
building 100 new nuclear reactors by 2030, but
unlike nuclear, pollution prevented through
efficiency would come at net savings, since
energy efficiency is so much more cost-effective
than building new reactors.
At mid-range costs of around $6,500 per kW,
near those forecast by Moody’s and comparable
to recently proposed reactors, building 100
nuclear reactors would cost $650 billion. 186
Directing $590 billion of this capital investment
to efficiency measures could capture a large
fraction of America’s identified potential for
electric energy efficiency, reducing electricity
consumption by 25 percent below business
as usual by 2030. The remaining money could
purchase enough wind turbines and other
renewable energy equipment to generate
an additional 130 billion kWh by 2030, 187
Altogether, this package of clean energy would
yield as much energy as more than 170 nuclear
reactors in 2030. 188 This package of clean energy
would reduce twice as much pollution as nuclear
through 2030, with net savings on electricity
costs - which nuclear power cannot offer.
Should the highest cost forecasts for nuclear
power come true, building 100 new reactors could
cost $1 trillion. This level of investment in clean
energy solutions could yield as much electricity
as more than 270 new nuclear reactors in the
year 2030. 189 This package of clean energy would
reduce three times as much pollution as nuclear
through 2030, for far less total cost.
Generating Failure
63
Nuclear Power Is Not
Needed to Provide
Reliable, Low-Carbon
Electricity for the Future
Proponents of nuclear power often make the
claim that nuclear reactors are necessary because
they are a source of emission-free “base-load"
electricity which “must run uninterrupted night
and day” in order to ensure the reliability of
electric service. 391
Patrick Moore, a public relations consultant
working on behalf of the nuclear industry, summed
up the argument, writing in the Washington Post
in 2006: 192
“Nuclear energy is the only large-scale,
cost-effective energy source that can
reduce [global warming] emissions while
continuing to satisfy a growing demand for
power... Wind and solar power have their
place, but because they are intermittent
and unpredictable they simply can't
replace big base-load plants such as coal,
nuclear and hydroelectric. Natural gas, a
fossil fuel, is too expensive already, and
its price is too volatile to risk building big
base-load plants. Given that hydroelectric
resources are built pretty much to capacity,
nuclear is, by elimination, the only viable
substitute for coal. It’s that simple... Every
responsible environmentalist should
support [nuclear power].”
Were nuclear power to be "the only viable
substitute for coal,” it would indeed be difficult for
any “responsible environmentalist" to oppose it -
even with the astronomical cost, the long timelines
for construction, the risks posed by weapons
proliferation and accidents, the environmental
impacts of uranium mining and nuclear plant
operation, and the still unresolved dilemma of how
to safely and responsibly transport and manage
the highly radioactive waste over millennia.
"/ think base-load capacity is going to become
an anachronism.” . . . "We may not need any
[new nuclear or coal plants], ever."
-Jon Wellinghoff, Chair of the Federal Energy
Regulatory Commission, speaking to reporters at
a U.S . Energy Association forum, April 22, 2009.' 90
But nuclear power is not an indispensible source
of carbon-free electricity. It is not needed to meet
“growing power demand" in a world where cost-
effective energy efficiency opportunities abound.
“Large scale” power plants are as much of a curse
as they are a blessing in running a well-functioning
electric grid. And alternative clean energy
sources are fully capable of replacing coal-fired
power plants - particularly if we make necessary
investments to improve the electric grid.
The Myth: Nuclear Plants Are
Needed to Produce Base-Load Power
Nuclear power proponents often argue that
nuclear power is among the only practical
sources of low-carbon “base-load” power, giving
it a supposedly irreplaceable role in a low-carbon
future. In other words, nuclear power may cost
more and may be considered less desirable by the
public than clean energy technologies, but we
must accept it in order to keep the lights on in
the future without triggering dangerous global
warming.
To understand why these claims do not hold
water, it is necessary to take a step back and look
at how we produce and use power in the United
States. Demand for electricity varies a great deal
from hour to hour and from season to season.
In the Mid- Atlantic region in 2008, for example,
the amount of electricity required at 5 p.m. on a
hot June afternoon was nearly three times greater
How Building Nuclear Power Plants Would Set America Back in the Race Against Global Warming
64
65
than the amount of electricity used at 5 a.m. on a
temperate May morning. 193
Base load, therefore, is that slice of power demand
that must be satisfied day or night, across all the
seasons.
Power is supplied to the grid by a variety of
different generating technologies, each with
its own characteristics. Nuclear and coal-fired
power plants have typically been assigned to meet
the base load - in part because they have been
the cheapest to run (and will therefore always be
the first plants dispatched to the grid) and in part
because they are physically unable to be turned
on and off at the flick of a switch. Restarting a
nuclear plant, for example, is a days-long process.
Because of these characteristics, nuclear and
coal-fired power plants are often called base-load
power plants.
There is no iron clad rule, however, that base load
must be met by a traditional base-load power
plant. Electricity is electricity, after ail, and as
long as enough power is generated - from any
source - to balance demand, the lights will stay
on. And as long as grid operators can predict and
control the flow of power to the system, the lights
will stay on reliably.
It is not necessary, therefore, for society or
electricity consumers to build unnecessarily
expensive nuclear power plants solely because
they have low costs of operation or generate power
constantly. Indeed, other approaches can satisfy
the need for base-load power and electricity at all
times of day, using clean and cost-effective energy
resources.
Building a Reliable Grid
with Clean Energy
Expending vast amounts of ratepayer money
on huge, central station power plants - such as
nuclear power plants - may have been the way
utilities safeguarded the reliability of the grid
in the past, but it doesn’t have to be the way
we do it in the future. By intelligently investing
our resources and engaging in sound planning,
America can dramatically increase its use of
clean energy technologies while safeguarding the
reliability of the electric grid.
Step 1; Reduce Demand
Through Energy Efficiency
Nuclear power advocates often argue that nuclear
is necessary to "satisfy a growing demand for
power.” 201 However, our electricity system wastes
a great deal of energy. By eliminating that waste
through energy efficiency programs, we can get
much more work done with the same - or even
less - electricity.
Altogether, experts at the American Council for
an Energy-Efficient Economy estimate that the
United States could cost-effectively reduce its
overall energy consumption by 25 to 30 percent
or more over the next 20 to 25 years - ensuring
that America uses less energy several decades
from now than we do today, even as our economy
grows. 202 Reducing electricity consumption by 25
percent below forecast levels by 2030 would save
more than 1.2 trillion kilowatt-hours of electricity
America could reduce its energy consumption by 25 to 30 percent
over the next 20 years through energy efficiency.
Photo: Eric Delmar,
How Building Nuclear Power Plants Would Set America Back in the Race Against Global Warming
66
in that year ~ equivalent to the output of more
than 150 new nuclear reactors. 203
Energy efficiency improvements reduce demand
at all parts of the day. Energy efficiency efforts
targeted at particular sources of base load
power demand - such as refrigerators, "stand-
by" power consumption from appliances, and
industrial facilities - can address the specific
slice of electricity demand currently met by
“base load" generators with low operating costs.
Moreover, energy efficiency programs can save
America trillions on energy costs. From a societal
perspective, efficiency is almost always cheaper
than operating existing power plants.
Step 2: Use Renewable and
Efficient “Base-Load” Power Sources
Nuclear power proponents tend to equate “clean
energy” with “intermittent energy” While it is true
that two large sources of clean energy - wind and
solar power - are intermittent, many are not. These
sources could be used to directly supplant existing
traditional base-load power plants, such as coal
plants. Geothermal energy, biomass and landfill
gas power plants, as well as concentrating solar
Concentrating solar thermal power with heat storage can provide
reliable electricity even when the sun isn't shining.
Photo: eSolar.
power plants outfitted with thermal storage, are
just as capable of producing consistent electricity
as existing coal, nuclear and hydroelectric plants.
In the future, other renewable technologies that
are capable of delivering consistent, always-on
power, such as ocean current turbines, could also
be deployed.
Additionally, combined heat and power units
— which capture waste heat from buildings or
industrial operations to generate electricity - can
operate on demand, greatly reducing emissions
compared to traditional coal- or natural gas-
fired power plants. Hospitals and other large
institutions often use combined heat and power to
guarantee that power will be available, even when
the larger electricity grid fails. Combined heat
and power can offer similar reliability benefits for
many types of buildings and industries.
Step 3: Integrate Predictable,
Intermittent Forms of Clean Energy
Solar and wind energy are both intermittent
forms of generation, generating power only when
the sun is shining or the wind is blowing. But that
does not mean that they cannot provide a sizeable
share of America’s electricity - especially when
integrated over large areas and coupled with
other clean power technologies. For example,
Denmark already generates more than 20 percent
of its electricity from wind power alone, and has
studied the possibility of deploying wind power at
penetrations as high as 100 percent. 204
Studies of the electricity system have shown
that, with effective planning, the system can
accommodate the integration of large amounts
of wind and solar power, without the need for
additional backup power sources and with minimal
cost. 205 At penetrations of up to 20 percent wind
power, the U.S. Department of Energy estimates
that the cost of integrating wind power will be
no more than 10 percent of the wholesale value
of the power - which would result in the cost of
wind power continuing to be much less that of a
nuclear power plant. 206
Generating Failure
67
Intermittent resources can be more effectively
integrated into the system with improved
forecasts of power output, and by increasing the
number and geographic dispersion of generators.
With today’s technology, wind power output over
a large region can now be forecast with 80 to 90
percent accuracy a day in advance, and with 90
to greater than 95 percent accuracy an hour in
advance. 207 Similarly, solar power output can be
forecast using models predicting solar intensity
throughout the day, taking into account the angle
of the sun and anticipated cloud cover.
Increasing the number of wind turbines, solar
panels, and other clean energy resources in a
system - especially if they are linked with effective
transmission and distributed over a wide area
- can smooth power output levels and increase
predictability. 208 For example, researchers at the
Rocky Mountain Institute and the University of
Colorado found that an optimized portfolio of
wind and solar power, in as few as six locations,
can reduce the variability of overall power output
by more than half. 209 The larger the system, the
more likely that some part of it will be generating
electricity at any given time, even if the wind stops
blowing or a cloud drifts over in some areas.
To achieve even higher penetration, wind, solar
and other types of clean energy power plants
could be hybridized with biogas or natural gas
turbines, much like a gasoline-electric hybrid car.
Other types of hybrid plants could be possible,
including offshore wind coupled with ocean wave
or ocean current turbines.
One of the more promising ideas for a hybrid
power plant involves combining solar with
biogas or natural gas. Plant economics are
improved by using a single steam-driven
turbine, with heat coming from either the sun,
or from natural gas or biogas, depending on
conditions. 210 This design avoids duplicating
infrastructure such as transmission lines
compared to having a fully separate backup
power plant. Solar systems could even be
Wind power in America could provide more energy than 190 new
nuclear reactors, with power output predictable with 80 to 90
percent accuracy a day in advance.
Photo: NREL.
added as a new source of heat to existing power
plants, in areas with appropriate conditions. 211
Step 4: Build a Smarter Grid
The reliability of electric service and the flexibility
of the system can be increased through smart grid
technology. America's current electricity grid is
designed to be a one-way street, with centrally
generated power distributed to meet demand.
While "smart grid" is used to refer to a variety
of measures, ultimately this technology is meant
to use the power of modern computer networks
to make the electricity system into a two-way
street, which can accommodate power generated
in many locations and exert control over load,
supply and even energy storage.
Widely deployed, well-designed smart grid
technology could help the electricity system
to respond dynamically to stress, exert fine
control over energy uses to maintain reliability,
accommodate the addition of large amounts of
diverse sources of renewable electricity - from
wind farms to neighborhood solar panels, and
integrate energy storage technologies such as a
network of batteries in plug-in electric or hybrid
electric cars. 212
As a result of the Obama administrations
economic recovery package, $1.2 billion in
How Building Nuclear Power Plants Would Set America Back in the Race Against Global Warming
68
smart grid test projects are now or will soon be
underway, 213 For example,
■ Southern California Edison is working on
systems to combine customer control over
home energy usage in response to system-
wide electrical demand, solar panel output,
home energy storage, and plug-in electric
vehicle need. 214
■ IBM and a North Carolina technology
company called Consert have deployed
a smart grid pilot project that allows the
utility to “cycle appliances on and off”
based on customer profiles detailing home
preferences such as ideal home temperature
and daily schedule. 215 A test run cut average
energy consumption by 20 percent, with one
household achieving a 50 percent cut. 216
In October 2009, the Obama administration
injected another $3.4 billion into electric grid
modernization, as a further part of the economic
recovery package. 217 Private companies are
contributing an additional $4.7 billion to the
effort. 218 This level of investment will purchase
18 million smart electricity meters - covering
more than 10 percent of all electricity customers
in the country. 219
Step 5: Integrate Storage
into the Electric System
Energy storage technologies could ultimately
enable America’s electricity system to rely
completely on dean sources of electricity that
never run out, breaking free entirely from fossil
fuels and nuclear power. Promising energy storage
technologies include compressed air storage,
pumped water storage, heat storage, and batteries
- such as those found in a plug-in electric or
hybrid electric car.
Compressed air storage uses underground
caverns or aquifers to hold pressurized air,
which can be released later to drive a turbine and
generate electricity. 220 These facilities can store
hundreds of hours of energy, and the technology
is proven at large scale. A 280 MW facility has
been operating in Germany since 1978, and a
110 MW facility has served in Alabama since
1991. 221 The natural gas industry currently uses
underground caverns like these to store much of
the nation’s natural gas supplies. 222
Pumped water storage involves pumping water
from a downhill reservoir to an uphill one, then
releasing the water to generate electricity when
necessary. 223 The U.S. already uses more than
20,000 MW of this technology. 224 Pumped storage
may even be possible without traditional dams.
A company called Riverbank Power is actively
testing a plan to drill deep holes in the ground
near a river, with the potential to generate as
much as 1,000 MW of power for six hours before
pumping the water back up to the surface. The
company is testing the technology at the former
site of the Maine Yankee nuclear power plant,
decommissioned more than a decade ago. 225
Solar developers are now building concentrating
solar thermal power plants in the desert
Southwest that incorporate molten salt tanks,
which can store the sun’s heat with greater than
99 percent efficiency. The heat can be used to
generate power when needed, even at night or
when the sun isn't shining. 226
Finally, companies are developing batteries that
can directly store electrical energy. 227 Some of
these batteries are large and stationary. Another
promising idea combines smart grid technology
with an electric or hybrid-electric vehicle system,
in which every parked vehicle becomes a storage
device to hold and dispatch dean power. 228
Generating Failure
69
Policy Recommendations
N uclear power is not the best available
solution we have in the fight against global
warming. In fact, it is a dead end. Putting
aside the unresolved problem of how to safely
dispose of nuclear waste and the risk of nuclear
weapons proliferation, the nuclear industry
simply cannot build new reactors fast enough
to deliver the progress we need on a time scale
that will make enough of a difference. Moreover,
new nuclear reactors are far more expensive than
other forms of emission-free electricity. Investing
in a new generation of nuclear reactors would
actually delay needed progress and divert critical
investment dollars away from better solutions.
As a matter of public policy, America should focus
on improving energy efficiency and generating
electricity from clean sources that never run out
- such as wind, solar, biomass and geothermal
power. These clean energy solutions can deliver
more emission reductions for our money -
faster - than nuclear power. Integrated in a
"smart grid,” clean energy resources can ensure
a reliable, safe, secure and affordable supply
of electricity, while rapidly and substantially
cutting global warming pollution.
billion in loan guarantees for proposed new
reactors, far in excess of the $18.5 billion
that Congress has thus far appropriated. 231
Applied to 34 possible new reactors.
Physicians for Social Responsibility calculate
that the nuclear industry could need as much
as $170 to $320 billion in loan guarantees. 232
The Congressional Budget Office considers
the risk of default on nuclear loan guarantees
as well above 50 percent, primarily because
nuclear is not cost-competitive with other
generation sources. 233 In addition to expanded
loan guarantees, the nuclear industry wish
list includes a variety of tax incentives and
favorable regulatory treatment. 234
■ The federal government should not further
subsidize new nuclear power plants. Any
subsidies for low-carbon energy alternatives
must be judged based on their relative short-
term and long-term costs and environmental
advantages. 235
Reduce the nation's emissions enough to
prevent the worst impacts of global warming,
guided by the latest scientific understanding.
Accordingly, state and federal leaders should:
Refrain from directing new subsidies to the
nuclear industry.
■ Nuclear power is already the most heavily
supported form of electric power in America.
From 1950 to 1999, the federal government
subsidized nuclear power to the tune of
$145 billion. 229 The value of all the subsidies
currently on offer to the nuclear industry is
substantial - reaching as high as $13 billion
for a single new reactor. 230 However, the
nuclear industry is asking for more than $120
The United States should work in concert
with other nations to keep cumulative
world emissions from exceeding 1 trillion
metric tons of carbon dioxide, or equivalent,
from 2000 to 2050. Progress on this scale
is necessary to give the world a 75 percent
chance of limiting global warming to 3.6° F
above the pre-industrial era - a target the
international community has set to limit the
severity of global warming impacts.
In order to make this goal possible, the U.S.
should commit to reducing emissions by at
least 35 percent below 2005 levels by 2020. The
How Building Nuclear Power Plants Would Set America Back in the Race Against Global Warming
70
nation should then aim to reduce emissions
by 80 percent or more by 2050.
■ Any policy designed to reduce America’s
emissions of global warming pollution should
ensure that polluters pay for any right to use
the atmosphere, and direct resulting revenues
into accelerating the transition to clean energy
sources and easing the impact on consumers.
Additionally, the policy should include strict
rules for the integrity of any carbon “offsets"
to ensure that efforts to reduce emissions are
successful.
Require America to obtain at least 25 percent
of its electricity from clean, sustainable energy
sources such as wind and solar power by 2025.
■ States with renewable electricity standards
(RES) are leading the nation in taking
advantage of America’s ample clean energy
potential. 236 The United States should set a
national renewable electricity standard that
requires that at least 25 percent of America’s
electricity come from new renewable energy
sources by 2025. Achieving that target would
put the nation well on its way to dramatic cuts
in emissions of global warming pollution.
Individual states should go further.
adopted by leading states across the country.
Such a standard would set a concrete goal
for improved energy efficiency and unleash
the resources needed to achieve that goal. A
federal EERS should seek to reduce electricity
demand by 15 percent by 2020 and natural gas
demand by 10 percent, with more ambitious
goals in later years.
■ Combining energy efficiency and renewable
energy with a national effort to limit emissions
of global warming pollution enhances the
benefit of these policies to America’s economy.
For example, the Union of Concerned
Scientists has found that combining an
EERS and RES with a cap on global warming
pollution would deliver $1.6 trillion in
consumer savings through 2030 compared to
continuing on our current path, 237
Strengthen energy efficiency standards and
codes for appliances and buildings.
■ America should ensure that all buildings and
appliances use energy efficiently. New codes
should aim to reduce energy consumption in
new buildings by 50 percent by 2020 and ensure
that all new buildings use zero net energy by
2030. Individual states should go further.
Require America to reduce overall electricity
use 15 percent by 2020.
■ America has vast potential to use energy more
efficiently. To take advantage of that potential,
the nation should adopt an energy efficiency
resource standard (EERS) similar to those
Invest in electric grid modernization.
■ America should upgrade its electricity
transmission and distribution system to
maximize our potential to take advantage
of a diverse range of energy efficiency
opportunities and clean power sources.
Generating Failure
Methodology
71
T he starting point for modeling the
policies and technologies evaluated in
this report was the Energy Information
Administration's (EIA) Annual Energy Outlook
2009, updated reference case. 238 The "no additional
action" scenario in this report matches the levels
of power generation, fuel consumption and
carbon dioxide emissions forecast by the EIA.
We model the emissions impact of building 100
new nuclear reactors, or deploying clean energy
measures with an equivalent capital investment,
relative to this initial forecast.
electric sector emissions by 55 percent below
2005 levels in the next 10 years, and then reducing
emissions by 95 percent by mid -century.
The early emission reductions required are
comparable in magnitude to those described by
the EIA in modeling the impact of the American
Clean Energy and Security Act, in a scenario with
no international offsets and limited availability
of nuclear or carbon capture and sequestration
technology. 241 Under these conditions, U.S. power
plant emissions could fall 37 percent by 2015.
Calculating a Carbon Budget
for the United States
This report accepts a world carbon budget of
1 trillion metric tons - the limit on allowable
emissions from 2000 to 2050 to have a 75 percent
chance of meeting international goals for limiting
the severity of global warming. We assign 20
percent of this budget, or 200 billion metric tons,
to the United States, which is approximately the
U.S. share of cumulative emissions by mid-century
under a simplified scenario in which all countries
work toward equalizing per-capita emissions of
global warming pollution at about 800 kilograms
per person per year. 239 By the end of 2009, 140
billion metric tons of allowable emissions will
remain for the next 40 years, due to pollution
already emitted this decade. 24 * 1
We calculate that the U.S. must reduce emissions of
carbon dioxide 35 percent below 2005 levels by 2020
and 80 percent by 2050 to stay within this budget.
Given these parameters, we estimate that U.S.
power plants must keep cumulative emissions
below 34 billion metric tons from 2010 through
2050 to enable the nation to do its part in limiting
the consequences of global warming.
Modeling the Emissions
Impact of Building 1 00 New
Nuclear Reactors by 2030
Starting with the power generation and emissions
pathway described in the Annual Energy Outlook
2009, we model the impact of building 100 new
nuclear power plants, using the following key
assumptions:
■ The nuclear reactors will have an average size
of 1,000 MW.
■ The reactors will operate with an average
capacity factor of 90 percent, an upper bound
estimate of the Keystone study. 242
Given this emissions trajectory, we assume that
two- thirds of the reductions through 2020 and half
of the total required reductions overall come from
the electricity sector. This is equivalent to reducing
Electricity generated by the reactors will 100
percent displace average coal-fired power
from the US. electricity grid - a best case
assumption.
How Building Nuclear Power Plants Would Set America Back in the Race Against Global Warming
72
■ The first reactors will come online in 2016
and construction will proceed evenly with
100 reactors operational by 2030.
■ Nuclear power has zero emissions of global
warming pollution.
■ Total electricity demand, generation by fuel
for all sources other than nuclear and coal,
and emission rates by fuel proceed as forecast
in Annual Energy Outlook 2009.
Developing a Clean Energy
Scenario Based on the Capital
Investment Needed to Build
100 New Nuclear Reactors
Starting with the range of overnight capital
investment required to build 100 new reactors
- $250 billion to $1 trillion, with a mid-point of
around $650 billion - we created a mid-, lower-
and upper-bound scenario of clean energy
deployment that could be achieved with the same
level of up-front investment.
With the lower bound investment of $250
billion, energy efficiency could reduce America's
electricity consumption by about 12 percent
below the reference case by 2030, assuming an
average program plus customer cost of 4.6 cents
per kWh. We assume that all of the costs of
efficiency measures are up-front capital costs, and
we specifically exclude all resulting consumer and
utility savings when comparing nuclear capital
investment with efficiency. This assumption
therefore significantly understates the actual
advantages of energy efficiency compared to
nuclear and is highly conservative.
At mid-range costs, building 100 nuclear reactors
would cost around $650 billion. $590 billion of
this could be used to capture a large fraction of
America's identified potential for electric energy
efficiency, reducing electricity consumption by
25 percent below business as usual by 2030. Since
energy efficiency is the most cost-effective clean
energy resource, we maximize its use. Based on
reference case assumptions for the capital cost
and performance of various renewable electricity
technologies outlined in Assumptions to the
Annual Energy Outlook 2009, the remaining $70
billion could purchase enough wind turbines and
other renewable energy equipment to generate an
additional 130 billion kWh by 2030, assuming an
even rate of investment from 2013 to 2030. 243
For the upper margin, we assume a nuclear
capital investment of $1 trillion and low-end
renewable capital costs from Assumptions to
the Annual Energy Outlook 2009. In addition to
the energy efficiency measures described in the
mid-range case, this level of investment could
drive the installation of enough infrastructure
to generate about 900 billion additional kWh of
renewable energy by 2030, assuming an even rate
of investment from 2013 to 2030. 244
Modeling the Emissions
Impact of Clean Energy
In modeling the emissions impact of clean
energy, we assume that a unit of energy efficiency
displaces an average unit of coal-fired electricity.
Additionally, we assume that a unit of renewable
electricity displaces half a unit of natural gas and
half a unit of petroleum or coal. Additionally, we
assume that efficiency and renewable power have
zero emissions of global warming pollution, and
that emissions rates by fuel progress over time as
described in the Annual Energy Outlook 2009.
Generating Failure
73
Calculating the Per-Dollar
Capability of Energy
Technologies to Prevent
Global Warming Pollution
We compare all technologies, assuming for
simplicity that each displaces an average unit
of power from the U.S. electricity system, with
an average emission rate per Annual Energy
Outlook 2009.
We use lifecycle carbon dioxide emission rates per
kWh for a variety of renewable technologies and
new nuclear reactorsfroma2008 report by Stanford
scientist Mark Jacobson. 245 We supplement these
figures with lifecycle emission data for combined
heat and power and traditional technologies from
a range of additional sources. 246
We use levelized cost estimates for an in-service
date of 2018, using merchant financing, from the
California Energy Commission for the following
technologies: 247
■ Onshore Wind - Class 5
■ Onshore Wind - Class 3/4
■ Geothermal
■ Biomass Combustion
■ Hydro - Small Scale and Developed Sites
■ Biomass IGCC (Integrated Gasification
Combined Cycle)
■ Offshore Wind - Class 5
■ Nuclear (Westinghouse AP100)
■ Solar Thermal
■ Solar Photovoltaics 248
■ Natural Gas Combined Cycle
* Natural Gas Simple Cycle
■ Coal IGCC
We supplement these figures with additional
technologies, including:
■ End Use Efficiency, based on estimates
by the American Council for an Energy
Efficient Economy of 4.6 cents per kWh
total resource cost, inflated to 2018 dollars
assuming a 3 percent per year inflation
rate, and with a 25 percent plus or minus
uncertainty factor applied; 249
■ Combined heat and power (CHP), derived
from estimates for recovered heat industrial
CHP, combined cycle industrial CHP, and
building-scale CHP by the Rocky Mountain
Institute, with a 3 percent per year inflator
applied to approximate 2018 cost; 250 and
■ Biomass co-firing cost estimates from the
investment firm Lazard, with a 3 percent
per year inflator applied to approximate
2018 cost. 251
With this information, we calculated the ability
of each technology to displace carbon emissions
based on the average emission rate of the
U.S. electricity grid, taking into account each
technology’s lifecycle carbon emissions. Error
bars in the resulting figure represent high and low
bounds of pollution reduction cost-effectiveness,
given a range of available resources, locations,
and uncertainty in cost estimates.
How Building Nuclear Power Plants Would Set America Back in the Race Against Global Warming
74
Notes
1 United Nations Environment
Programme, Impacts of Climate
Change Coming Faster and Sooner:
New Science Report Underlines
Urgency for Governments to Seal the
Deal in Copenhagen (press release),
24 September 2009; United Nations
Environment Programme, Climate
Change Science Compendium 2009,
September 2009.
2 Ibid and Hamish Pritchard et a).,
"Extensive Dynamic Thinning on the
Margins of the Greenland and Antarctic
Ice Sheets," Nature advance online
publication, doi: 10. 1038/nature0847 1,
23 September 2009.
3 See note 1.
4 For example, mountain glaciers
are melting, which wii! reduce the
availability of drinking water, irrigation
and hydropower for as much as 25
percent of ail people on earth. See note
1 .
5 Sec for example, Nuclear Energy
Institute, Key Issues: Climate Change
Initiatives, downloaded from www.nei.
org/keyissues on 5 October 2009.
6 On a life-cycle basis - taking into
account the energy used to mine and
enrich uranium, build and dismantle the
nuclear plant and dispose of radioactive
waste - a nuclear reactor in the U.S.
emits about 16-55 grams of carbon
dioxide per kWh: F. Fthenakis and H.C.
Kim, “Greenhouse-Gas Emissions from
Solar Electric- and Nuclear Power: A
Life-Cycle Study," Energy Policy 35:4,
2007.
7 For example, see: Lorraine Woellcrt,
"McCain Plans to Almost Double U.S.
Nuclear Reactors," Bloomberg News, 19
June 2008: Lamar Alexander, U,S. Senate
Republican Conference, Blueprint for
100 New Nuclear Power Plants in 20
Years: How Nuclear Power Can Produce
Enough Clean, Cheap, Reliable, American
Energy to Create Jobs, Clean the Air, and
Solve Global Wanning, 13 July 2009.
8 John Deutch et aL, Massachusetts
Institute of Technology, Update of the
MIT 2003 Future of Nuclear Power, May
2009.
9 Intergovernmental Panel on Climate
Change, Climate Change 2007: 'Ihe
Physical Science Basis, Contribution of
WorkingGroup / to the Fourth Assessment
Report of the Intergovernmental Panel on
Climate Change, 2007.
10 Ibid.
11 Ibid.
12 Ibid.
13 See notes 9, 1 and Paul R. Epstein and
Evan Mills, eds., The Center for Health
and the Global Environment, Harvard
Medical School, Climate Change
Futures: Health, Ecological and Economic
Dimensions, November 2005.
14 A.P. Sokolov et al„ Massachusetts
Institute of Technology, Joint Program
on the Science and Policy of Global
Change, "Probabilistic Forecast for 21“
Century Climate Based on Uncertainties
in Emissions (without Policy) and
Climate Parameters," Journal of Climate
22: (19): 5175-5204, in press (doi:
10.1 175/2009JCL12863. 1 ), 2009; Vicky
Pope, United Kingdom Met Office,
Head of Climate Change Advice, “Met
Office Warn of 'Catastrophic' Rise
in Temperature,” The Times Online
(London), 19 December 2008.
15 6J5 feet: W.T. Pfeffer et al.. Institute of
Arctic and Alpine Research, University
of Colorado, Boulder, "Kinematic
Constraints on Glacier Contributions
to 21st-Century Sea-Level Rise," Science
321: 1340-1343. September 2008.
16 Researchers at Florida State University
calculate that for every 1“ C increase in
sea-surface temperatures, the frequency
of severe hurricanes (category 4 and 5)
increases by nearly one-third. James
Eisner et al., "The Increasing Intensity of
the Strongest Tropical Cyclones," Na lure
455, 92-95, 4 September 2008.
17 E.J. Burke, S.J. Brown, and N. Christidis,
“Modeling the Recent Evolution of
Global Drought and Projections for
the Twenty- First Century with the
Hadley Centre Climate Model,” Journal
of Hydrometeorology 7: 1113-1125,
2006; Susan Solomon et al., U.S.
National Oceanic and Atmospheric
Administration, “Irreversible Climate
Change due to Carbon Emissions,"
Proceedings of the National Academy of
Sciences 106: 1704-1709, 10 February
2009; Richard Seager et al., "Model
Projections of an Imminent Transition
to a More Arid Climate in Southwestern
North America," Science 3 16: 1 18 1- 1 1 84,
25 May 2007; and see note 24.
18 See note 9.
19 Ibid.
20 Ibid.
21 Ibid.
22 See notes 16 and 9.
23 See note 9.
24 U.S. Global Change Research Program,
Global Climate Change Impacts in the
United States, Cambridge University
Press, 2009.
25 Michael Roddy, "Climate Change
Turning Seas Acid: Scientists," Reuters,
31 May 2009; David Adam, "How Global
Warming Sealed the Fate of the World’s
Coral Reefs," The Guardian, 2 September
2009.
26 Charles Hanley, "Beetles, Wildfire:
Double Threat in a Warming World,"
Associated Press, 24 August 2009.
27 See note 13, Paul R. Epstein and Evan
Mills, eds.
28 Ibid.
29 See note 17, Susan Solomon et al.
30 See note 14.
31 Much of the recent climate science is
reviewed in note 1.
32 Intergovernmental Panel on Climate
Change, Fourth Assessment Report,
Climate Change 2007: Synthesis Report,
2007; Brian Walsh, "The New Age of
Extinction," Time, 1 April 2009.
33 Gary Shaffer et al., "Long-Term Ocean
Oxygen Depletion in Response to
Carbon Dioxide Emissions from Fossil
Fuels,” Nature Geoscience 2: 105-109, 25
January 2009.
34 Rachel Warren, "Impacts of Global
Climate Change at Different Annual
Mean Global Temperature Increases,"
in Hans Joachim Schnellnhuber, ed.,
Avoiding Dangerous Climate Change,
Cambridge University Press, 2006; HM
Treasury, Stern Review: The Economics of
Climate Change, 2006, 57.
35 See note 15,
36 Greenland from S. Solomon, et al,
"2007: Technical Summary" in Climate
Change 2007: The Physical Science
Basis, Contribution of Working Group l
to the Fourth Assessment Report of the
Intergovernmental Panel on Climate
Generating Failure
75
Change, 2007, 80. "Possibly much faster”
based on James Hansen, "A Slippery
Slope: How Much Global Warming
Constitutes ‘Dangerous Anthropogenic
Interference?’ ” Climatic Change 68:269-
279, 2005. West Antarctic ice sheet from
S.H. Schneider, et al., "Assessing Key
Vulnerabilities and Risk from Climate
Change," in Climate Change 2007:
Impacts, Adaptation and Vulnerability,
Contribution of Working Group II to
the Fourth Assessment Report of the
Intergovernmental Panel on Climate
Change, 2007,794.
37 James Zachos et al., "An Early Cenozoic
Perspective on Greenhouse Warming
and Carbon-Cycle Dynamics,” Nature
451: 279-283, 17 January 2008.
38 One third: See note 17, E.J. Burke et al.
and note 17, Susan Salomon et al.
39 See note 17, Richard Seagcr et al.
40 Andreas Sterl et a!„ Royal Netherlands
Meteorological Institute, “When
Can We Expect Extremely High
Surface Temperatures?,” Geophysical
Research Letters 35, L14703,
doi:10.1029/2008GL034071, 19 July
2008.
41 See note 16.
42 Donald McKenzie et aL, U.S.
Department of Agriculture, “Climatic
Change, Wildfire, and Conservation,”
Conservation Biology 18(4): 890-902,
August 2004.
43 Patricia H. Gude et al., Headwaters
Economics, Homes in Wildfire-Prone
Areas: An Empirical Analysis of Wildfire
Suppression Costs and Climate Change,
peer reviewed and in preparation for
journal submission, 24 April 2009.
44 For example, see note 36, S.H. Schneider,
et al., 789.
45 Nathaniel Gronenwold, "IPCC Chief
Raps G-8, Calls for Global Greenhouse
Gas Emissions Cuts After 2015,” New
York Times, 21 July 2009.
46 European Council, Presidency
Conclusions, Brussels, 2005: European
Council, Communication on Community
Strategy on Climate Change, Brussels,
1995; international Climate Change Task
Force, Meeting the Climate Challenge,
2005; and Malle Meinshausen, "What
Docs a 2° C Target Mean for Greenhnuse
Gas Concentrations? A Brief Analysis
Based on Multi-Gas Emission Pathways
and Several Climate Sensitivity
Uncertainty Estimates,” in Hans Joachim
Schnellnhuber, ed., Avoiding Dangerous
Climate Change, Cambridge University
Press, 2006. Also see Juliet Eilperin, "U.S.
Aims to Weaken G-8 Climate Change
47
49
53
54
55
60
61
62
63
Statement,” Washington Post, 13 May
2007.
See note 32, Intergovernmental Panel on
Climate Change.
Myies R. Allen et al., “Warming Caused
by Cumulative Carbon Emissions
Towards the Trillionth Tonne," Nature
458: 1163-1166, 30 April 2009; Make
Meinshausen et al., “Greenhouse-Gas
Emission Targets for Limiting Global
Warming to 2 *C,” Nature 458: 1158-
1162, 30 April 2009.
See discussion in Myles Allen et al., "The
Exit Strategy,” Nature Reports Climate
Change, doi:10.1038/climate.2009.38, 30
April 2009.
See note 48, Maltc Meinshausen et al.
Ibid.
James Hansen eta!., “Target Atmospheric
C0 3 : Where Should Humanity Aim?”
Open Atmospheric Science Journal 2:
217-231, 15 October 2008.
ibid.
See note 45.
Administration, Electric Power Annual
with data for 2007, Table 1.1. Net
Generation by Energy Source by Type of
Producer, 1996 through 2007, 21 January
2009.
64 For example, the Energy Information
Administration, modeling the effects of
the American Clean Energy and Security
Act, predicts that 80 to 95 percent of the
required emissions cuts would come
from the electric power sector as opposed
to buddings, industry or transportation.
See: U.S. Department of Energy, Energy
information Administration, Energy
Market and Economic Impacts of H.R.
24S4. the American Clean Energy
and Security Act of 2009, Report SR-
CI1AF/2Q09-05. 4 August 2009.
65 ABC News - Washington Post poll,
13- 17 August 2009, accessed at www.
pollingreport.com/energy.htm, 4
October 2009.
66 See note 48, Make Meinshausen et al.
67 For fnrther exploration of this approach,
see Bruce Hodge, Establishing an
Equitable Global Carbon Budget
Alex Morales, "Global Carbon Budget
Needed to Fight Warming, Nobel
Winners Say,” Bloomberg News, 28 May
2009.
See note 49.
intergovernmental Panel on Climate
Change, Climate Change 2007:
Mitigation of Climate Change,
Contribution of Working Group III to
the Fourth Assessment Report of the
Intergovernmental Panel on Climate
Change. 2007, Box 13.7, p. 776.
See note 49.
100 years: T.J. Biasing, Carbon Dioxide
Information Analysis Center, Recent
Greenhouse Gas Concentrations,
do i: 10.3334/CD1 AC/atg.032, July 2009.
Kevin Baumert et al., World Resources
Institute. Navigating the Numbers:
Greenhouse Gas Data and International
Climate Policy. 2005.
Sec e.g. Catherine Dodge, “Gnre Says
Stimulus Will Help Solve Climate Crisis,”
Bloomberg News, 28 January 2009.
U.S. Environmental Protection Agency,
Inventory of U.S. Greenhouse Gas
Emissions and Sinks : 1990-2007, April
2009.
80 percent: U.S. Department of Energy,
Energy Information Administration,
State Historical Tables: U.S. Electric
Power Industry Estimated Emissions by
State (ElA-767 and El A-906). 29 January
2009: “just under half”: US. Department
of Energy, Energy Information
To Pre vent Catastrophic Climate Change, Draft
18 August 2007, available at tenaya.com/
climatechange.
68 2000-2007 actual emissions: U.S.
Department of Energy, Energy
Information Administration, Annual
Energy Review 2008, Table 12.1:
Emissions of Greenhouse Gases, 1980-
2007, 26 June 2009; 2008-2009 emissions
forecast: U.S. Department of Energy,
Energy Information Administration, Aw
Updated Annual Energy Outlook 2009
Reference Case Reflecting Provisions of
the American Recovery and Reinvestment
Act and Recent Changes in the Economic
Outlook, Tabic 8, SR/OIAF/2009-03,
April 2009.
69 This budget assumes that the U.S.
reduces emissions of carbon dioxide 35
percent below 2005 levels by 2020 and
80 percent by 2050, and that two-thirds
of the reductions through 2020 and half
of the total required reductions overall
come from the electricity sector. This
is equivalent to reducing electric sector
emissions by 55 percent below 2005
levels in the next 10 years, and then
reducing emissions by 95 percent by
mid-century. The Energy Information
Administration has estimated that the
Waxman-Markcy American Clean
Energy and Security Act, under a scenario
in which opportunities for international
offsets, nuclear power, carbon capture
and biomass technologies are limited,
could drive a 37 percent reduction in
U.S. power plant emissions by 2015 -
delivering more than 90 percent of the
How Building Nuclear Power Plants Would Set America Back in the Race Against Global Warming
76
emission cuts called for by this budget
through 2030. See the “No Internationa]
Offsets / Limited Alternatives" case in
note 64, U.S. Department of Energy.
70 Data courtesy of: Jonathan Koomey and
Nate Huffman, “A Reactor-Level Analysis
of Busbar Costs for U.S. Nuclear Plants,
1970-2005,” Energy Policy 35: 5630-5642,
November 2007.
71 Nuclear Energy Institute, Key Steps
in Building a New Nuclear Reactor
(factsheet), January 2009.
72 Nuclear Regulatory Commission,
New Reactor Licensing Applications:
Schedules by Calendar Year, 13 October
2009, available at www.nrc.gov/reactors/
new-reactors.html.
73 The ABWR reactor certification, issued
in 1997, expires in 2012. World Nuclear
Association, Advanced Nuclear Reactors,
September 2009, available at www.
world-nuclear.org.
74 U.S. Department of Energy, Energy
Information Administration, Status
of Potential New Commercial Nuclear
Reactors in the United States, 19 February
2009; and sec note 72.
75 See note 72.
76 See note 71.
77 Ibid.
78 Ibid.
79 Status of Potential New Commercial
Nuclear Reactors in the United States,
University of Missouri Nuclear Science
and Engineering Institute, June 2008.
80 Matthew Wald, "U.S. Rejects Nuclear
Plant Over Design of Key Piece,” New
York Times, 16 October 2009.
81 Peter Bradford, "Massive Nuclear
Subsidies Won't Solve Climate Change,"
Wisconsin State Journal, 3 November
2009.
Institute, in: "How Much?" Nuclear
Engineering International, 20 November
2007.
87 See note 83, U.S. Department of Energy.
88 See note 70.
89 Associated Press, “3-Year Delay Expected
at Finnish Nuclear Plant,” International
Herald Tribune, 17 October 2008; James
Kantcr, “More Delays at Finnish Nuclear
Plant," New York Times, 2 September
2009.
90 James Kanter, “Cost Overruns at Finland
Reactor Hold Lessons," New York Times,
28 May 2009.
91 Alao Katz, "Nuclear Bid to Rival Coal
Chilled by Flaws, Delay in Finland,”
Bloomberg.com, 5 September 2007.
92 See note 89, James Kanter.
93 Ibid.
94 Peggy Hollinger, "AREVA Warns of
Soaring Reactor Costs,” Financial
limes, 29 August 2008; Peggy Hollinger,
"AREVA in Talks with TVO over EPR
Delays,” Financial Times, 16 October
2008.
95 Mariah Blake, "Bad Reactors: Rethinking
Your Opposition to Nuclear Power?
Rethink Again,” Washington Monthly,
January 2009.
96 Thomas Lane, “Is Europe Losing its
Nuclear Construction Skills?” Building,
12 December 2008.
97 Terry Macalister, "Nuclear Industry
Claims It Is Now 'Sexy' but Admits to
Rising Costs," 77ie London Guardian, 5
December 2008.
98 Yves Marignac, WISE Paris and Nuclear
Information and Resource Service,
European Expert: U.S. Policymakers Are
'As Wrong As They Can Be' About The
French Experience With Nuclear Power
(Press Release), 15 September 2009.
82 Mark Cooper, "All Risk, No Reward," in:
“Does Nuclear Fit the Bill?" National
Journal, Energy & Environment Expert
Blog, 19 October 2009.
83 U.S. Department of Energy, Energy
Information Administration.AnArta/ysis
of Nuclear Power Plant Operating Costs,
DOE/E1A-051, 1988: and see note 70.
84 “The Experience Curve,'' Economist.com,
14 September 2009.
85 For an analysis of some of these factors,
see: I.C. Buppand J.C. Derian, The Failed
Promise of Nuclear Power: The Story of
Light Water, (Basic Books, Inc., New
York, NY) 1981.
86 For example, see comments by Marvin
Fertel, chief of the Nuclear Energy
99 Matthew Wald, "Approval Is Sought to
Build Two Reactors in Texas," New York
Times, 25 September 2007.
100 Jim Harding, Economtcsqf Nuclear Power
and Proliferation Risks in a Carbon -
Constrained World, Presented to the
California Senate Energy, Utilities and
Communication Committee, June 2007
and published in The Electricity Journal
30:1-12, November 2007.
101 Jenny Weil, "Supply Chain Could Slow
the Path to Construction, Officials Say,”
Platts Nucleonics Week, 15 February
2007.
102 Ibid.
103 Ibid.
104 Ibid.
105 2011: Josef Hebert, “AREVA Plans U.S.
Nuclear Parts Plant," Associated Press,
23 October 2008; 30 to 70: assuming an
average pace of seven reactors completed
per year and a construction duration of 4
to 10 years each.
106 Catherine Morris et al„ The Keystone
Center, Nuclear Power Joint Fact-
Finding, June 2007; available at www.
keystone.org.
107 For example, see Siena Kaplan,
Environment America Research &
Policy Center, Building an Energy-
Efficient America: Zero Energy and High
Efficiency Buildings, May 2008.
108 Mississippi Department of Human
Services, Stimulus Weatherization
Assistance Program, Frequently Asked
Questions: Contractors, June 2009,
109 GroSoIar, Frequently Asked Questions,
downloaded from grosolar.com/solar-
faq / on 30 September 2009.
110 For examples, see: Travis Madsen and
Bernadette Del Chiaro, Environment
California Research 8i Policy Center,
Greening the Bottom Line: California
Companies Save Money By Reducing
Global Warming Pollution, August 2006;
and Joseph Romm, Cool Companies:
How the Best Businesses Boost Profits and
Productivity by Cutting Greenhouse Gas
Emissions, (Island Press: Washington,
D.C.) 1999; www.cool-companies.org/
homepage.cfm.
111 For example, see: Poornima Gupta,
“Duke Energy to Build 200 MW Wind
Farm in Wyo." Reuters News, 31 August
2009; Thomas Goerner et a!., Gigaton
Throwdown, Redefining What's Possible
for Clean Energy by 2020, Chapter on
Concentrating Solar Thermal Power,
available at www.gigatonthrowdown.
org, June 2009.
112 European Commission, Joint Research
Centre, Solar Modules Production
World-Wide Almost Doubled in 2008
(press release), 21 September 2009.
113 U.S, Department of Energy, Office of
Energy Efficiency and Renewable Energy,
20% Wind Energy by 2030: Increasing
Wind Energy’s Contribution to U.S.
Electricity Supply, May 2008, 163.
1 14 Marty Kushler et al„ American Council
for an Energy-Efficient Economy, Five
Years In: An Examination of the First
Half-Decade of Public Benefits Energy
Efficiency Policies, Report Number
U041, 2004; Dan York et a!., American
Council for an Energy-Efficient
Economy, Compendium of Champions:
Chronicling Exemplary Energy Efficiency
Programs from Across the U.S., Report
Number U081, 2008; Maggie Eldridge
Generating Failure
77
et al., American Council for an Energy-
Efficient Economy, The 2008 State Energy
Efficiency Scorecard, October 2008.
115 Based on the authors' modeling and
assumptions about reactor size and
performance. See Methodology.
116 American Wind Energy Association
(AWE, A), Annual Wind Industry Report:
Year Ending 2008, 2009; American Wind
Energy Association, Fighting Against
Impact of Economic Crisis, U.S. Wind
Energy Industry Installs 1,200 MW in
Second Quarter (press release), 28 July
2009.
117 Ibid, Annual Wind Industry Report.
118 Ibid.
119 Assuming a 33 percent capacity factor,
12.500 MW of wind would generate 36
GWh of electricity per year. Compared
to nuclear output on an energy-
equivalent basis, assuming a reactor size
of 1 GW and an annual capacity factor
of 90 percent (per note 106, Keystone
120 Ryan Wiser and Mark Bolinger,
Lawrence Berkeley National Laboratory,
2008 Wind Technologies Market Report,
July 2009.
121 Emerging Energy Research, Global
Concentrated Solar Power Markets and
Strategies 2009-2020, 11 May 2009.
122 Assuming a 33 percent capacity factor,
8.500 MW of solar would generate 24.6
GWh of electricity per year. Compared
to new nuclear reactors as described in
note 1 19.
123 Bernadette del Chiaro, Environment
California Research & Policy Center,
California's Solar Cities: Leading the
Way to a Clean Energy Future, Summer
2009.
124 Karen Ehrhardt-Martinez and John A.
"Skip" Lnilner, American Council for
an Energy-Efficient Economy, The Size
of the U.S. Energy Efficiency Market:
Generating a More Complete Picture,
Report Number F083, May 2008.
125 The Pew Charitable Trusts, The Clean
Energy Economy: Repowering Jobs,
Businesses and Investments Across
America, June 2009,
126 Ibid.
127 Sec note 116, Annual Wind Industry
Report.
128 See note 125.
129 Cost estimates reviewed in: Mark
Cooper, Vermont Law School, Institute
for Energy and the Environment,
The Economics of Nuclear Reactors:
Renaissance or Relapse?, lune 2009.
130 U.S. Department of Energy, Energy
Information Administration,
Assumptions to the Annual Energy
Outlook 2009, Table 8.12, Cost
Characteristics for Advanced Nuclear
Technology: Three Cases, Report DOE/
E1A-0554, March 2009.
131 See note 129.
132 High-high case in Jim Harding,
Economics of Nuclear Reactors and
Alternatives, February 2009. Reviewed
in note 129.
133 Jim Hempstead et al., Moody's Corporate
Finance, New Nuclear Generating
Capacity: Potential Credit Implications
for US. Investor Owned Utilities, May
2008; and close to the high-low case in
note 132, Jim Harding, reviewed in note
129.
134 Former Vice President Al Gore, A
Generational Challenge to Repower
America, a speech given in Washington
D.C., 17 July 2008.
135 For example. President Barack Obama
has said, “The nation that leads the world
in creating new energy sources will be
the nation that leads the 21st-century
global economy. ... [Tjhe bulk of our
efforts must foeus on unleashing a new,
clean-energy economy that will begin to
reduce our dependence on foreign oil,
will cut our carbon pollution by about
80 percent by 2050, and create millions
of new jobs right here in America....’
United States of America, Office of the
President, Remarks by the President
on Clean Energy, al TYinity Structural
Towers Manufacturing Plant, Newton,
Iowa, 22 April 2009; available at www.
whltehouse.gov.
136 According to recent estimates of reactor
overnight costs, and assuming a new
reactor will have a 1,000 MW capacity.
The low end of the range is represented
by note 130; and the high end of the
range is represented by note 132, Jim
Harding, reviewed in note 129.
137 See note 133, Jim Hempstead, et al.
138 See note 136.
139 McKinsey Global Energy and Materials,
Unlocking Energy Efficiency in the U.S.
Economy, July 2009.
140 McKinsey estimates that investing $520
billion in energy efficiency measures
would reduce annual emissions of global
warming pollution by 1.2 billion tons of
carbon dioxide equivalent annually by
2020. that level of pollution reduction
could be achieved by 100 GW of new
nuclear capacity, operating at 90 percent
capacity, if it fully displaced existing
coal.
141 See note 129.
142 John Deutch, Ernest Moniz, et al.,
Massachusetts Institute of Technology,
The Future of Nuclear Power: An
Interdisciplinary MIT Study, 2003, 3.
143 John Deutch, Ernest Moniz, et al.,
Massachusetts Institute of Technology,
The Future of Nuclear Power: An
Interdisciplinary MIT Study, 2003, ix.
144 See note 8.
145 $l,500/kW: For example, see comments
by Marvin Fertei, chief of the Nuclear
Energy Institute, in: “How Much?"
Nuclear Engineering International, 20
November 2007; and comments by
Constellation Energy Executive Vice
President Michael Wallace in: Tom
Pelton, “An Energy Boom in Calvert,"
Baltimore Sun, 21 August 2005.
146 See note 129; Mark Clayton, "Nuclear
Power's New Debate: Cost," Christian
Science Monitor, 13 August 2009; and
Rebecca Smith, “New Wave of Nuclear
Plants Faces High Costs,” Wall Street
Journal, 12 May 2008.
147 Tyler Hamilton, "S26B Cost Killed
Nuclear Bid: Ontario Ditched Plan Over
High Price Tag that Would Wipe Out 20-
Year Budget," The Toronto Star, 14 July
2009.
148 Tyler Hamilton, “Cost of New Nuclear
in Ontario? Anywhere from $7,400 to
$10,800 per Kilowatt, Depending on
Your Appetite for Risk,” www.cleanhreak.
ca, 14 July 2009.
149 See note 147.
150 This figure actually underestimates
the degree to which nuclear projects
exceeded budget targets. It excludes
escalation and finance costs incurred
by construction delays, and does not
include data from some of the most
over-budget reactors. See Congress
of the United States, Congressional
Budget Office, Nuclear Power's Role in
Generating Electricity, May 2008, based
on data from U.S. Department of Energy,
Energy Information Administration,
An Analysis of Nuclear Power Plant
Construction Costs, Technical Report
DOE/E1A-0485. 1 January 1986.
151 The Vogtlc plant in Georgia, which began
producing electricity in the late 1980s,
cost $8.87 billion to build. Us original
construction budget was on the order of
$660 million. See Jon Gertner, “Atomic
Balm?” The New York Times Magazine,
16 July 2006; David Schlissel and Bruce
Biewald, Synapse Energy Economics,
Inc., Nuclear Power Plant Construction
Costs, July 2008.
How Building Nuclear Power Plants Would Set America Back in the Race Against Global Warming
78
152 Sec note 70, Jonathan Koomey and Nate
Hultman.
153 Ibid.
154 Communities of experts often have an
optimistic bias, and "overconfidence in
the rates of future technological advance
should be expected," See Nathan
Hultman and Jonathan Koomey, “ The
Risk of Surprise in Energy Technology
Costs' Environmental Research Letters
2, 0304002, 2007; online at stacks.iop.
org/ERL/2/034002.
155 Nathan Hultman, Jonathan Koomey and
Daniel Kammen, "What History Can
Teach Us about the Future Costs of U.S.
Nuclear Power, 1 * Environmental Science
and Technology 41; 2088-2093, 1 April
2007.
156 Moody's Global Infrastructure Finance,
New Nuclear Generation: Ratings
Pressure Increasing, Special Comment ,
June 2009, p. 2.
157 See note 129.
158 Ibid.
159 Katherine Friedrich ot at., American
Council for an Energy-Efficient
Economy, Saving Energy Cost-Effectively:
A National Review of the Cost of Energy
Saved Through Utility-Sector Energy
Efficiency Programs, September 2009.
160 Ibid.
161 For example, see; Maggie Eldridge et
al., American Council for an Energy-
Efficient Economy, Energy Efficiency:
The First Fuel for a Clean Energy Future,
Report E082, February 2008; R. Neal
Elliott et al., American Council for an
Energy Efficient Economy, Potential
for Energy Efficiency and Renewable
Energy to Meet Florida's Growing Energy
Demands, Report E072, May 2007; John
A. "Skip" Laitner and Vanessa McKinney,
American Council for an Energy-
Efficient Economy, Positive Returns:
State Energy Efficiency Analyses Can
Inform U.S, Energy Policy Assessments,
Report Number E084, June 2008;
Richard Sedano, Regulatory Assistance
Project, Economic, Environment and
Security Effects of Energy Efficiency
and Renewable Energy: A Report for
EPA and the New England Governors'
Conference, Northeast Energy Efficiency
Partnerships (NEEP) Policy Conference,
24 May 2005; Howard Geiler et al.,
Southwest Energy Efficiency Project, The
New Mother Lode: The Potential for More
Efficient Electricity Use in the Southwest,
November 2002.
162 Doug Hurley et al., Synapse Energy
Economics for Northeast Energy
Efficiency Council, Costs and Benefits
of Electric Utility Energy Efficiency in
Massachusetts, August 2008.
163 Experts estimate that recycled energy
sources could generate 240,000 to
360,000 GWh per year of electricity
in the United States - equivalent to
between 6 and 10 percent of total national
consumption in 2007; 'Thomas R. Casten
and Martin J. Collins, Private Power
LLC, Recycled Energy: An Untapped
Resource, 19 April 2002; percentage of
national consumption estimated from
data in U.S. Department of Energy,
Energy Information Administration,
Annual Energy Outlook with Projections
to 2030, Reference Case Table 8, Report
Number DOE/EIA-0383, June 2008.
Cost estimate: Amory Lovins and Imran
Sheikh, “The Nuclear lllnsion,” Ambio (in
press), 2009; available at www.rmi.org.
164 For example, see note 161, Maggie
Eldridge et a!.; Amory Lovins, Rocky
Mountain Institute, Nuclear Power:
Economics and Climate-Protection
Potential, RM1 Publication Number EOS-
14, 6 January 2006; and see note 165.
165 Amory Lovins and Imran Sheikh, “The
Nuclear Illusion," Ambio (in press), 2009;
available at www.rmi.org.
166 Wind: see note 113; Sun: Bernadette del
Chiaro, Tony Dutzik and Sarah Payne,
Environment America Research & Policy
Center, On the Rise: Solar Thermal Power
and the Fight Against Global Warming,
Spring 2008; Geothermal: Jefferson W.
Tester et al., Massachusetts Institute
of Technology for the U.S. Department
of Energy, The Future of Geothermal
Energy: Impact of Enhanced Geothermal
Systems (EGS) on the United States in the
21st Century, 2006.
167 Southern Alliance for Clean Energy,
Yes We Can: Southern Solutions for a
National Renewable Energy Standard,
12 February 2009.
168 With an average levelized cost of 8.6
cents per kWh (2006 dollars). Sec note
113.
169 Compared to nuclear output on an
energy-equivalent basis, per note 119.
170 See note 113, page 163.
171 Energy and Environmental Economics,
Inc. for the California Public Utility
Commission, Generation Costs
(Microsoft Word document), 16
November 2007; available at www.
ethree.com/cpuc _ghg_modcl.html.
172 Mid-range estimate of 16 cents per
kWh, plus 2 cents for transmission
and distribution, per note 129. More
than 110 reactors; compared to nuclear
output per note 1 19.
173 The Union of Concerned Scientists
(UCS) estimates that a national
renewable electricity standard of 25
percent by 2025 would reduce electricity
prices by more than 4 percent annually,
and natural gas prices by more than 2
percent annually, saving consumers more
than $95 billion: Union of Concerned
Scientists, Clean Power, Green Jobs: A
National Renewable Electricity Standard
Will Boost the Economy and Protect the
Environment, March 2009; and similarly,
experts at the American Council for an
Energy-Efficient Economy estimate that
a national energy efficiency resource
standard would save Americans close to
$ 170 billion on their energy bills by 2020:
Laura Furrey, Steven Nadel and John
“Skip" Laitner, American Council for an
Energy-Efficient Economy, Laying the
Foundation for Implementing A Federal
Energy Efficiency Resource Standard,
March 2009.
174 For example, see note 129.
175 Joe! Klein, California Energy
Commission, Comparative Costs of
California Central Station Electricity
Generation Technologies, CEC-200-
2009-017-SD, Draft Staff Report, August
2009.
176 For example, see notes 129, 182, 165,
132 (Harding), 133 (Hempstead et al.),
159, Standard and Poor’s, The Race for
the Green: How Renewable Portfolio
Standards Could Affect U.S. Utility
Credit Quality, 10 March 2008; and
Rachel Clcetus, Steven Clemmer and
David Friedman, Union of Concerned
Scientists, Climate 2030: A National
Blueprint of a Clean Energy Economy,
May 2009.
177 See note 175.
178 Sources: see Methodology.
179 Charles F. Kutscher, ed., American Solar
Energy Society, Tackling Climate Change
in the U.S.: Potential Carbon Emissions
Reductions from Energy Efficiency and
Renewable Energy by 2030, January 2007,
estimate in constant 2004 dollars.
180 Kate Galbraith, "More Sun for l.css;
Solar Panels Drop in Price," New York
Times, 26 August 2009.
181 Jim Loney, “FPL Unveils Plans for Three
Florida Solar Plants," Reuters News
Service, 25 June 2008; Matthew Wald,
"Two Large Solar Plants Planned in
California," New York Times, 15 August
2008.
1 82 Lazard, Levelized Cost of Energy Analysis
2.0, Presentation at NARUC, June 2008.
183 Ibid.
Generating Failure
79
184 Sven Teske et ai„ Greenpeace
International, European Renewable
Energy Council, Energy [Revolution: A
Sustainable USA. Energy Outlook, 11
March 2009. Arjun Makhijani, Nuclear
Policy Research Institute and the
Institute for Energy and Environmental
Research, Carbon-Free and Nuclear-
Free: A Roadmap for U.S. Energy Policy,
IEER Press and RDR Books, October
2007.
185 Assuming an average program plus
customer cost of 4.6 cents per kWh. We
assume that all of the costs of efficiency
measures are up-front capital costs,
and we specifically exclude all resulting
consumer and utility savings when
comparing nuclear capital investment
with efficiency. This assumption
therefore significantly understates the
actual advantages of energy efficiency
compared to nuclear and is highly
conservative.
186 See note 129.
187 Assuming an even rate of investment
from 2013 to 2030, and based on
reference case assumptions for the
capital cost and performance of various
renewable electricity technologies
outlined in: U.S. Department of Energy,
Energy Information Administration,
Assumptions to the Annual Energy
Outlook 2009, Report DOF./E1A-0554,
March 2009. All wind or a mix of landfill
gas, biomass co-firing, geothermal and
wind would have a similar capital cost.
188 Compared to nuclear output per note
119.
189 In addition to the energy efficiency
measures described in the mid-range
case, this level of Investment could drive
the installation of enough infrastructure
to generate about 900 billion additional
kWh of renewable energy by 2030. All
wind or a mix of landfill gas, biomass
co-firing, geothermal aod wind would
have a similar capital enst. See note 187.
Compared to nuclear energy output per
note 119.
190 Noelle Straub and Peter Behr, "No Need
to Build New U.S. Coal or Nuclear
Plants - FERC Chairman,” Energy and
Environment Daily, 22 April 2009.
191 For example, see note 7, Lamar
Alexander.
192 Patrick Moore, Greenspirit Strategies
(a PR firm working for corporate clients
including the nuclear industry), “Going
Nuclear: A Green Makes the Case,”
Washington Post, 16 April 2006.
193 PJM East hourly load data downloaded
from www.pjm.com/markets-and-
operations/ energy/ real- time/loadhryr.
aspx
1 94 Alan Gomez, "Answers Sought in Florida
Power Outage,’ USA Today, 27 February
2008.
195 David Lochbaum, Union of Concerned
Scientists, Testimony to the U.S, House
of Representatives, Select Committee
on Energy Independence and Global
Warming 12 March 2008.
196 Ibid.
197 Amory Lovins, Rocky Mountain
Institute, “Surprises and Resilience:
Mishap or Malice Regularly Crash the
Electricity System,' RMi Solutions,
Spring 2006.
198 Ibid.
206 See U.S. Department of Energy, Energy
Information Administration, Electric
Power Annual with Data for 2007, Figure
ES 2. U.S. Electric Power Industry Net
Summer Capacity, 21 January 2009.
207 J. Charles Smith, Utility Wind Integration
Group, 20% Wind by 2030: Impact on
Utilities and Transmission (power point
presentation), WCEE, Washington D.C..
23 June 2009.
208 See note 113.
209 Bryan Palmintier, Lena Hansen and
Jonah Levine, Rocky Mountain Institute
and University of Colorado at Boulder,
Spatial and Temporal Interactions of
Solar and Wind Resources in the Next
Generation Utility, presented at the
Solar 2008 Conference, 3-8 May 2008.
199 Ibid.
200 According to Amory Lovins, "98 to 99
percent of U.S. power failures originate
in the grid.’ See note 165.
201 See note 192.
202 See note 124 and Steven Nadel, Anna
Shipley, and R. Neal Elliot, American
Council for an Energy-Efficient
Economy, The Technical, Economic, and
Achievable Potential for Energy Efficiency
in the U.S.—A Meta-Analysis of Recent
Studies, From the Proceedings of the
2004 ACEEE Summer Study on Energy
Efficiency in Buildings, 2004.
203 1.2 trillion: calculated based on the
reference forecast in: U.S. Department
of Energy, Energy Information
Administration, An Updated Annual
Energy Outlook 2009 Reference Case
Refecting Provisions of the American
Recovery and Reinvestment Act and
Recent Changes in the Economic Outlook,
Table 8, SR/01AF/2009-03, April 2009;
150 reactors: compared to nuclear
output on an energy-equivalent basis per
note 1 19.
204 See note 113.
205 See note 113 and American Wind Energy
Association, Groundbreaking Minnesota
Wind Integration Study Finds up to 25
Percent Wind Can Be Incorporated into
Electric Power System (press release), 13
December 2006. Wind industry analysts
suggest it is possible to have up to 40
percent wind power as part of a smoothly
functioning electricity grid. See, for
example, Randall S. Swisher, "Bringing
Wind Energy Up to ’Code,'" Public
Utilities Fortnightly, June 2004. Swisher,
executive director of the American Wind
Energy Association, a wind industry
trade group, contends that the technical
limits to the integration of wind into
electricity grids is approximately 40
percent of annual energy use.
210 For further exploration of this idea, see:
Craig Severance, “Solar You Can Count
On." Energy Economy Online, 18 August
2009.
211 Ibid.
212 Craig Severance, “Smart Grid," Energy
Economy Online, 27 April 2009.
213 John Collins Rudolf, "A Mad Dash for
Smart Grid Cash," New York Times, 15
September 2009.
214 Ibid.
215 Todd Woody, “Smart Grid Project Cuts
Electricity Usage," New York Times
(Green, Inc.), 21 September 2009.
216 Ibid.
217 Evan Lehmann, “Obama Admin Invests
S3.4B in "Smart Grid” Projects,” Energy
and Environment News, 27 October
2009.
218 Ibid.
219 Ibid.
220 For further exploration of energy storage
technologies, see: Craig Severance,
“Enabling Wind, Sun To Be Our Main
Power Supplies: Quest for Storage -
“Holy Grail" of New Energy Economy -
Nears Goal,” Energy Economy Online, 29
August 2009.
221 Ibid.
222 Ibid.
223 Ibid.
224 Ibid.
225 Ibid.
226 See note 166, Bernadette Del Chiaro et
al.
227 See note 220.
228 E.g. Tom Simonite, "Electric Cars Could
Act as Batteries for the Energy Grid,"
New Scientist, 4 December 2007.
How Building Nuclear Power Plants Would Set America Back in the Race Against Global Warming
80
229 Marshall Goldberg, Renewable Energy
Policy Project, federal Energy Subsidies:
Not All Technologies Are Created Equal,
July 2000.
are an Expensive Way to Remove
Greenhouse Gases from the Economy,
available at earthtrack.net/files/Carbon
efficiency of Subsidies.pdf.
242 See note 106.
243 See note 187.
244 Ibid.
230 Doug Koplow, Earth Track, Inc., The
Future of Nuclear Energy in a Carbon
Constrained World (power point
presentation), Carnegie Corporation,
New York, NY, 5 November 2007.
231 Katherine Ling, “Waxman Chairmanship
Could Thwart Industry Priorities"
Environment and Energy Daily, 18
November 2008; See also Rebecca Smith,
"Clean Energy Confronts Messy Reality,"
The Wall Street Journal, 20 November
2008.
232 Michele Boyd, Physicians for Social
Responsibility, Billions of Dollars of
Nuclear Subsidies
Hidden in New Energy Reform Act of 2008
(Factsheet), 1 1 September 2008.
233 U.5. Congressional Budget Office, Cost
Estimate: S. 14 Energy Policy Act of 2003,
As Introduced on April 30, 2003, 7 May
2003.
234 The Nuclear Energy Institute, Legislative
Proposal to Help Meet Climate Change
Goals by Expanding US. Nuclear Energy
Production, 21 October 2009.
235 For an example of this kind of analysis,
see: Doug Koplow, Earth Track, Subsidies
236 Tony Dutzik and Rob Sargent, Frontier
Group and Environment America
Research & Policy Center, America’s
Clean Energy Stars: State Actions
Leading America to a New Energy Future,
November 2007.
237 See Union of Concerned Scientists in
notes 173 and 176.
238 U.S. Department of Energy, Energy
Information Administration, Annual
Energy Review 2008, Table 12.1:
Emissions of Greenhouse Gases, 1980-
2007, 26 June 2009; 2008-2009 emissions
forecast: US. Department of Energy,
Energy Information Administration, An
Updated Annual Energy Outlook 2009
Reference Case Refecting Provisions of
the American Recovery and Reinvestment
Act and Recent Changes in the Economic
Outlook, Table 8, SR/01AF/2009-03,
April 2009.
239 See note 67.
240 See note 68.
241 This scenario delivers more than 90
percent of the emission cuts called for
by our electricity sector carbon budget
through 2030. See note 69.
245 Mark Jacobson, “Review of Solutions
to Global Warming, Air Pollution,
and Energy Security" Energy and
Environmental Science 2: 148-173, 2009.
246 Combined heat and powerandnaturaigas
combined cycle: see note 16S; Biomass:
Frank Bamaby and James Kemp, eds.,
Oxford Research Group, Secure Energy?
Civil Nuclear Power, Security, and Global
Warming, March 2007, 41. Available at
www.oxfordresearchgroup.org.uk.
247 See note 175.
248 This calculation assumes 100 percent of
the cost of installing a solar PV system
is born by the utility as in the case of a
utility-built project. However, when
solar PV systems are simply subsidized
by ratepayers through feed-in-tariffs
or rebates, the per unit of energy cost
of solar PV to the utility /ratepayer,
dramatically falls making distributed
solar power much more cost effective
from a utility perspective than this
analysis shows.
249 See note 159.
250 See note 165.
251 See note 182.
Generating Failure
81
Center tor American Progress
Clean-Energy Investments
Create Jobs in Ohio
Investments in a clean-energy economy will generate major employment benefits for
Ohio and the rest of the U.S. economy. Our research finds that Ohio could see a net
increase of about $5.6 billion in investment revenue and 67,000 jobs based on its share
of a total of$ I SO billion in clean-energy investments annually across the country. This is
even after assuming a reduction in fossil fuel spending equivalent to the iocrease in clean-
energy investments.
Adding 67,000 jobs to the Ohio labor market in 2008 would have brought the state’s
unemployment rate down to 5.4 percent from its actual 2008 level of 6.5 percent.
Clean energy creates jobs across the economy
Clean-energy investments create 16.7 jobs for every $1 million in spending. Spending on
fossil fuels, by contrast, generates 5.3 jobs per $1 million in spending.
Most of the jobs created through clean-energy investments will be in the same areas
that people work in today. Constructing wind farms creates jobs for sheet metal workers,
machinists, and truck drivers. Increasing buildings’ energy efficiency through retrofit-
ting requires roofers, insulators, and building inspectors. Expanding mass transit systems
employs civil engineers, electricians, and dispatchers.
Relative to spending on fossil fuels, clean-energy investments create 2.6 times more jobs
for people with college degrees or above, 3 times more jobs for people with some college,
and 3.6 times more jobs for people with high school degrees or less.
71 Political Economy Research Institute • Center for American Progress
82
Legislation encourages private investment
Most of the SI 50 billion per year in new dean energy investments would come from
private businesses. The American Recovery and Reinvesment Act encourages private
investors through a wide range of subsidies, incentives, and regulations. The American
Clean Energy and Security Act — currently being debated in Congress — includes a range
of measures that would substantially strengthen these clean-energy investment incentives
for private businesses.
Policies such as the ACESA will have significant economic benefits in addition to their envi-
ronmental contributions. Most importantly, a clean-energy investment program will be an
engine for expanding employment opportunities in Ohio and throughout the country.
Investment promotes efficiency and renewable energy
The largest share of dean-energy investments will go toward energy efficiency, including
funds for building retrofits, public transportation, and a smart grid electrical transmission
system. Important new investments will also be devoted to developing renewable energy
sources, including wind, solar, biomass, and geothermal power.
The overall clean-energy investment program will provide a major boost to the construc-
tion and manufacturing sectors, in Ohio and throughout the United States.
Robert Pollin is professor of economics and co-director of the Political Economy Research
Institute at the University of Massachusetts-Amherst. James Heintz is associate research
professor and associate director for PERL Heidi Garrett-Peltier is a PERI research fellow.
72 Political Economy Research Institute * Center for American Progress
83
j|ACCF
Ohio
Economic Impact on the State from the Waxman-Markey Bill, H.R. 2454
Proposed Legislation to Reduce Greenhouse Gas Emissions
This study analyzes the Waxman-Markey bill under low
and high cost cases with respect to a baseline that projects
the future in the absence of the bill. 1,2 W/M sets targets that
would reduce GHG emissions to 1 7% below 2005 levels by
2020; 42% below 2005 levels by 2030; and 83% below
2005 levels by 2050 (Figure 1). The price of carbon permits
(what companies must pay to emit CO 2 ) could reach
between $48 and $6 1 per metric ton of CO 2 (MT) by 2020
and could increase to between S123/MT and S159/MT by
2030. 3
Impact on Jobs
The jobs impact of W/M is delayed by the free allocation of
permits and generous carbon offsets. By 2030, as emission
reduction targets tighten and other W/M provisions phase
out, Ohio jobs decline by 79,700 under low cost case and
by 108,600 under high cost case (Figure 2). The primary
cause of job losses would be lower industrial output due to
higher energy prices, the high cost of complying with
required emissions cuts, and greater competition from
overseas manufacturers with lower energy costs.
Decrease in Disposable Household Income
Higher energy prices would have ripple impacts on prices
throughout the economy and would impose a financial cost
on households. Ohio would see disposable household
income reduced by $133 to $261 per year by 2020 and
$873 to $1,419 by 2030 (Figure 3).
W/M’s Impact on Energy Prices
Most energy prices would rise under W/M, particularly
coal, oil and natural gas. By 2015, gasoline would increase
between 6% and 8%, electricity between 2% and 5% and
natural gas between 17% and 26%. By 2030, gasoline
prices increase between 20% and 26% while electricity
prices increase by up to 60% and natural gas by up to 79%.
Table l shows the increase in energy prices faced by a
typical Ohio household compared to national household
increases over the 2020-2030 period.
Factors Contributing to Higher Electricity Prices
W/M would reduce GHG emissions from all sectors of the
economy (transportation, residential, commercial, and
industry); however, as the largest emitter of GHGs, the
primary impact would fall on the electric sector. W/M
would result in the electric industry shutting down most
carbon-based generation and/or using expensive, as yet
unproven technology, to capture and store C0 2 . To meet
the stringent goals of W/M, the electric industry would also
have to substitute high cost technologies, such as biomass
and wind, for conventional generation.
Figure 1. US GHG Emissions and
H.R 2454 Targets
Figure 2. Loss in Employment by 2030
Figure 3. Loss of Disposable Income per
Household
2020 2030
'The study used NEMS/ACCF-N AM 2, the version of the National Energy Modeling System (NEMS) used in this project, and assumptions provided by ACCF and NAM
for this analysis. It was performed independent of E1A which uses the NEMS model for energy forecasting and policy analysis. (See the full report for all assumptions).
84
Impact on Economic Growth
High energy prices, fewer jobs, and loss of industrial output
are estimated to reduce Ohio’s gross state product (GSP) by
between $1,3 and $2.3 billion per year by 2020 and $13.9
and $18.9 billion by 2030 (Figure 4).
Impact on Industry
Ohio’s major economic sectors will be affected by emission
caps (Figure 5). The current two largest sectors, chemical
manufacturing and transportation manufacturing, show
decreases in output of 6.1% to 6.7% and 8.0% to 8.5%,
respectively in 2030. All manufacturing sectors will suffer
output losses of between 5.4% and 6.0% by 2030, while
output from energy intensive sectors falls between 10.7%
and 11.7%. Ohio’s coal production would fall between
70.5% and 76.8% and electricity production would fall by
15.1% to 18.6% by 2030 (Figure 6). These continued losses
will have a lasting effect on the economic base of Ohio.
Impact on Low Income Families 9
The impacts of W/M will be felt especially by the poor,
who spend a greater share of their income on energy and
other goods than other income brackets. By 2030, higher
energy prices mean that low income families in Ohio (with
average incomes of $13,725) will spend between 18.9%
and 20.1% of their income on energy under W/M compared
to a projected 15.9% without W/M. Others on fixed
incomes such as the elderly will also suffer
disproportionately.
Impact on State Budgets 6
The increases in Ohio’s energy costs under W/M will
impact expenditures throughout the state. Specifically,
Ohio’s 5,204 schools and universities and 241 hospitals
will likely experience a 28.2% to 42.0% increase in energy
expenditures by 2030. For government entities, costs for
services, including public transportation and vehicle fleets,
such as school buses, will also rise under W/M.
Table 1; Change in Energy Prices at Household Level
(% change from baseline)
Sector
us
ISI
cum
ll'-l'.'l
eh
Electricity
(Residential)
H'Hil
EM
It.'l
EM
KV
BE3I
BUM
EM
mm
H'Hil
EBB
BE3
EE3
Gasoline
HW
BIB
EM
Ktm'i
EE3
1EE21
HTve
grtrtTl
EHE1
Em
IB
n.et'ti
EEZf
Ml
Natural Gas
(Residential)
ESI
EM
EM
HiVU
EM
Ittfl
EBB
ESI
EE3
Figure 4. Loss in Gross State Product For
Ohio
SO
-$ 5,000
o
^ & - 510,000
•2 g
= **-$ 15,000
z
-$ 20,000
2020
-$1,315_j 2 20o
C LowCost Scenario
■ High Cost Scenario
Figure 5. Percent Change in Output by
industry in 2030
0%
-5%
- 10 %
- 15 %
- 20 %
MAN EIS CHEM TRAN
l
-S.4%_ 6 o%
I 1 1
□ OH Low 1
■ OH High ;
"° ° ' -8.5%
Figure 6. Percent Change in Production by
Sector in 2030
Coal Elec.
3 “Low” refers to the Low Cost Case, which assumes higher nuclear capacity, fewer constraints on new generating technologies, etc. “High” refers to the High Cost
Case, which assumes low nuclear additions and constrained new generation technologies, etc. (See the full report for all assumptions).
3 All dollar figures in this report are presented in constant 2007 dollars.
4 MAN = manufacturing industries, HIS = energy intensive industries; CHEM = chemical manufacturing; TRAN = transportation manufacturing.
5 These projections assume that the energy expenditures by income quintile in the state are the same as the average for the census division, since there is insufficient
data to accurately calculate this quantity on the state level.
s These projections assume that the expenditures on schools and hospitals arc the same as the average for the census region, since there is insufficient data to
accurately calculate these quantities on the state level.
85
Senator Alexander. Madam Chairman.
Senator Boxer. Yes.
Senator Alexander. May I ask permission, since you mentioned
my comment, to put in the record a comparison of nuclear and
wind power that has a Department of Energy estimate that shows
the cost of building 186,000 wind turbines is approximately the
same as building 100 nuclear plants, that it would cover 25,000
square miles instead of 100, and that it would cost 10 times as
much in Federal subsidies and 19,000 more miles of new trans-
mission lines, which are not part of that calculation?
Senator Boxer. We will put that in the record and make a point,
I am not supporting having ratepayers pay for those windmills out-
side of this bill either. So I think what you do is, if you do this cap-
and-trade, all of these have a level playing field and you don’t pick
a winner, because they are all going to be winners if they don’t
emit carbon.
[The referenced information follows:]
86
The National Academies: America's Energy Future, July 2009.
87
Senator Inhofe. Madam Chairman.
Senator Boxer. We are going to move on.
Senator Inhofe. Well, Madam Chairman, let me ask proce-
durally, if you are going to come through and refute things that
each member on this side says afterwards, I think that is not a
good policy unless we get a chance to participate in that.
Senator Boxer. Right, I only do it
Senator Inhofe. I sat here for 25 minutes listening to Senator
Kerry talk about me, and I didn’t have a chance to respond. I will,
however.
Senator Boxer. I so appreciate it. And I just have to say, when
somebody says the Chairman isn’t being fair and that we don’t
have the bill out there, I need to respond to that. But we will all
have time later.
Senator Lautenberg.
OPENING STATEMENT OF HON. FRANK R. LAUTENBERG,
U.S. SENATOR FROM THE STATE OF NEW JERSEY
Senator Lautenberg. Thanks very much, Madam Chairman. We
are all indebted to John Kerry for his presentation.
Even though one could disagree, I don’t know whether it is in a
substantial fact disagreement or political, but the fact is, he offered
us a view of where we are at that cannot be ignored. We are all
grateful to him. Along the way, I think we ought to have a vote
on whether his speech made any sense or not.
But I feel like we are developing an unreality show here. The
whole thing to me is unreal, I must tell you, friends. We are now
looking at the number of pages of paper that determine whether
or not this bill has veracity. I didn’t know there was such an inter-
est in protecting the trees here. But we hear protests about 900
pages.
The fact of the matter is that we have a very good friend on the
other side, distinguished Senator, Senator Voinovich; he was very
proud of his work on Clean Skies and talked about producing
10,000 pages worth of information that could be viewed and judged.
Senator Voinovich. It was the analysis, Senator, just the anal-
ysis of it.
Senator Lautenberg. So what we are now hearing is that, heav-
en forbid that there are too many pages in this thing. We ought
to have in our audience a bunch of children, 6 to 10, 6 to 11 years
old, and explain to them why it is that we want to fight about this.
Do we see any risk to them? Do we see any danger? When we look
at the evidence in front of us, whether it is our physical security
or whether it is security for good health and long lives.
There is a film produced on ocean acidification. Thirty percent of
the carbon dioxide has been typically absorbed in oceans. That has
increased markedly since the Industrial Revolution. The increase is
a hundred times faster than any change in acidity experienced by
marine organism for at least 20 million years. Ocean acidification
affects shellfish, primarily by impairing their ability to develop pro-
tective shells. Carbon dioxide continues to be released into our at-
mosphere. Ocean acidification could harm commercially important
shellfish, lobster, crabs and mussel.
88
And yes, it would be important to hear from the farmers. It
would be equally important to hear from the fishermen. It would
be equally important to hear from those who are concerned about
what is happening with asthma in our society. The same things
that increase global warming increase temperatures also increase
susceptibility to asthma. One in 10 Americans today is asthmatic.
And I wish that we could look into the faces of the children and
explain in their simple terms, I have 10 grandchildren, my oldest
16 years old, just turned, has asthma. One of my younger grand-
daughters has diabetes.
What would I pay in taxes, what would any American spend in
taxes if we could reverse the damage of an illness that they might
carry through their lives? What does that cost? Is that cost realistic
in terms of what we are talking about? No, listen. Job loss is a ter-
rible calamity. My father lost his job many times during the De-
pression years, and it was catastrophic in our family. But what is
the final cost? That is the thing that we have to look at.
And Madam Chairman, please accept the full presentation of my
speech into the record. But I do want to commend you for getting
this hearing going, for moving the process along, for saying, we
have had enough, we are sounding the alarm, America, wake up,
wake up, your kids are in danger, your families are in danger. And
let’s get to work putting out that fire.
Thank you.
[The prepared statement of Senator Lautenberg follows:]
Statement of Hon. Frank R. Lautenberg,
U.S. Senator from the State of New Jersey
Madam Chairman, global warming is threatening the future of our planet. It is
harming our health. It is destroying our ecosystems. And it is threatening our secu-
rity.
In 2007, 11 former admirals and high ranking generals warned that climate
change could “create sustained natural and humanitarian disasters on a scale far
beyond those we see today.”
Testifying before this committee, Retired Vice Admiral Dennis McGinn said,
“Without bold action now to significantly reduce our dependence on fossil fuels, our
national security will be at greater risk.”
According to the CIA’s National Intelligence Council, as many as 800 million more
people will face water or cropland scarcity in the next 15 years.
Too many people fighting for too few resources breeds conflict, terrorism and war.
The military itself could be affected by global warming. Major U.S. bases in Nor-
folk, Virginia, and Diego Garcia in the Indian Ocean could be overrun with water
if sea levels rise just a fraction of what scientists are predicting.
Our dependence on oil causes global warming, but it also distorts our foreign pol-
icy, leaving us at the mercy of the few countries that control most of the world’s
oil — and putting the national security of our country at risk.
It is up to us to leave the planet and our economy in better shape for generations
to come.
The world’s eyes are now on this committee to see if we will fulfill our duty —
to pass a bill that addresses the greatest environmental challenge of our time.
We must begin by setting a science-based target for reducing global warming pol-
lution — and this bill gets that done.
This legislation would reduce emissions in the U.S. by 20 percent by 2020. That’s
a modest goal, but one rooted in science — and one that promotes clean energy today,
not years down the road.
We must invest in our transportation system — because cars, trucks, buses and
other forms of transportation represent about one-third of the greenhouse gases gen-
erated in the United States.
This bill is a good start — but we’ve got to do a lot more to support cleaner and
more efficient transportation like transit and rail. And we must invest in research
89
and development to create jobs in the short-term and give our country the tools to
compete in the long-term.
Investing in new technologies turns factories that are now dark into vibrant cen-
ters of industry, building components like wind turbines and solar panels. In fact,
from 1998 to 2007, the number of jobs in America’s emerging clean energy economy
grew nearly two and a half times faster than overall jobs, and these jobs have re-
mained strong during otherwise difficult economic times.
In New Jersey alone, more than 2,000 clean energy companies employ more than
25,000 people.
I am proud to say that this bill increases funding for clean energy research and
development by billions of dollars over the life of the bill.
Madam, Chairman, every generation has a duty. Fighting climate change is ours.
Nothing less than the security of our country, the future of our economy, the health
of our families, and the survival of our planet are at stake.
Senator Boxer. Thank you so much, Senator.
Senator Barrasso.
OPENING STATEMENT OF HON. JOHN BARRASSO,
U.S. SENATOR FROM THE STATE OF WYOMING
Senator Barrasso. Thank you so much, Madam Chairman.
Madam Chairman, I have very serious concerns about American
job losses under this Administration. We must view the promises
of green job creation made by the President and the authors of this
bill with legitimate skepticism. The Administration and experts
told the American public and members in Congress that their eco-
nomic stimulus bill would create millions of jobs across America.
The economic stimulus package has failed to deliver on that prom-
ise. In fact, the opposite has occurred.
Jobs in western States have spiraled downward. In my home
State of Wyoming, 8,000 jobs were projected to be created; instead,
10,500 have been lost since the stimulus passed. Throughout the
West, thousands of jobs have been lost in every western State. In
fact, over 2.7 million jobs have disappeared nationwide since the
stimulus package was passed. The situation is only getting worse.
The $800 billion stimulus bill is not going to save the day.
The Chair of the President’s Council on Economic Advisors,
Christina Romer, testified last Thursday before the Congressional
Joint Economic Committee. She stated the stimulus package’s im-
pact on the economy will weaken from here on. She stated, most
analysts predict that the fiscal stimulus will have its greatest im-
pact on growth in the second and third quarters of 2009. By mid-
2010, fiscal stimulus will likely be contributing little to growth.
This is a stark admission by the Administration that we have al-
ready seen the best we are going to see in terms of job growth from
the President’s stimulus. This energy tax bill will be an American
job killer as well. It is the next attempt by the Administration to
promise jobs for all, create some for a few and let the rest of us
fend for ourselves.
The west and the fossil fuel reliant States in the South and the
Midwest face a different future than the coastal States under this
bill. The Director of the Congressional Budget Office, Dr. Douglas
Elmendorf, gave America a glimpse of that future in a recent testi-
mony before the Senate Energy and Natural Resources Committee.
Dr. Elmendorf stated that the fossil fuel sector would mirror the
massive job losses experienced by the manufacturing industry since
the 1970s. He also stated that the fact that jobs turn up some-
90
where else for some people does not mean that there are not sub-
stantial costs borne by people, by communities and by firms in af-
fected industries and affected areas. You saw this in manufac-
turing, and we will see this in response to the changes that this
legislation will produce.
The 1970s were not a happy time in the Rust Belt manufacturing
States. No region of this country should have to suffer that again.
So why are we setting up whole regions of the country to have a
replay of that era?
There is a lot of talk about green job creation in this energy tax
bill to replace lost jobs. The few jobs created will not benefit the
most affected. Once the jobs have been driven away from the towns
and cities that rely on the fossil fuel industry, chain reactions will
occur for the folks who live there. The people of Wyoming will not
accept this outcome. So I urge my colleagues to consider what has
already been stated by the non-partisan Congressional Budget Of-
fice. This massive energy tax is a job killer for States that produce
the red, white and blue energy that our Nation relies upon, and all
of those people who depend upon fossil fuels.
Thank you, Madam Chairman.
Senator Boxer. Thank you very much, Senator.
Senator Merkley.
OPENING STATEMENT OF HON. JEFF MERKLEY,
U.S. SENATOR FROM THE STATE OF OREGON
Senator Merkley. Thank you very much, Madam Chair. I appre-
ciate your leadership and Senator Kerry’s leadership and delibera-
tions that have led us to this point to have a bill ready to debate
and consider in detail in public. Certainly, these many months of
intensive efforts, both last year and this year, have prepared to this
point.
But there is a moment when you need to lay out a bill before the
public and have the full conversation. I appreciate that you all
have taken us forward to that point today.
Many say that this bill is very complicated, and indeed, energy
touches virtually every aspect of our economy. But this bill can be
reduced to a series of fairly clear choices. It is a choice between
clean air or dirty air. It is a choice between investing a billion dol-
lars a day in red, white and blue American-made energy or sending
that billion dollars a day overseas to countries like Venezuela and
Saudi Arabia and other countries that don’t always share our na-
tional interests.
This bill is a choice of creating jobs for Americans or sending
those jobs overseas. It is a choice between a strong, secure energy
independent America or a weaker, oil addicted America. It is a
choice between planetary stewardship that serves our ecosystems
and human civilization well or a rise in the Earth’s temperature
that is devastating for ecosystems and for human civilization.
This bill represents a choice between a forward looking American
leadership that repositions our energy economy to make America
an economic powerhouse in the future or backward looking Amer-
ican policies that protect and sustain an inefficient energy status
quo that will undermine our success in the coming generation.
91
Here in this building, we often wrestle with short-term choices
versus long-term vision. But our children get this. Every university
I have been to, when I ask the students what their top concern is,
they always weigh in that we need to act on climate change. They
get it because they have seen the science. We simply have to look
at the Arctic ice, the Antarctic ice, the amount of carbon dioxide
and the acidification of the ocean. Our glaciers, our permafrost, the
rate of carbon dioxide buildup in the environment. Each one of
these clear, significant factors can only be missed if you shut your
eyes or put your head in a hole in the ground.
Now, some say that this bill moves too fast. The aim is 20 per-
cent reduction below 2005 carbon dioxide levels by 2020. We are al-
ready closing on in 9 percent below 2005 levels. That means this
bill is saying, let’s move 11 percent more over the next 11 years.
That is just 1 percent per year. That is not an overly aggressive
goal for us to undertake as a Nation.
In fact, you could argue that this bill is not moving fast enough.
The Intergovernmental Panel on Climate Change said that to limit
the probability of reaching a temperature increase over 2 percent,
developing countries should reduce their C0 2 by 2020 by 25 per-
cent below the 1990 level. Well, to compare apples to apples, this
bill will put us at 7 percent below 1990 by 2020, not 25 to 40 per-
cent.
We are taking and setting up a framework that moves us for-
ward on a vision of reducing carbon dioxide, but few could argue
that this bill is overly aggressive. We need to understand today
what our children already understand, that this is a debate about
the security of our Nation, about how clean our air is, about wheth-
er we create American jobs, about whether we have a strong econ-
omy in the future, and about whether we are good stewards of our
planet for the benefit of our ecosystems and human civilization. I
hope we in this committee can make the right decision.
Thank you, Madam Chair.
Senator Boxer. Thank you, Senator.
Next we will hear from Senator Vitter, and then Whitehouse,
Gillibrand if she returns, and Cardin. And then we will get to the
panel.
Senator Vitter.
OPENING STATEMENT OF HON. DAVID VITTER,
U.S. SENATOR FROM THE STATE OF LOUISIANA
Senator Vitter. Thank you very much, Madam Chair.
Like all the members on this side of the dais, I also support an
aggressive national energy policy that looks to dramatically de-
crease our dependence on foreign sources and aggressively get us
beyond high carbon fuels. And like other members here, I think
that needs to focus on conservation, nuclear, natural gas and new
technologies like electric cars and many other advancing new tech-
nologies. I think that sort of approach, that sort of national energy
strategy, would have broad based support of the American people
and bipartisan support from Congress.
Unfortunately, that is not what we are talking about today. I
think what we are talking about today, this sort of cap-and-trade
proposal is very different and doesn’t have that broad based sup-
92
port. I believe this cap-and-trade concept is a bad idea in any cli-
mate, and is a particularly horrible idea in this deep recession, as
unemployment continues to grow and hover around 10 percent.
I want to mention four concerns in particular with this and simi-
lar legislation. First of all, something about the science. I believe
there is certainly one thing that the science is absolutely clear on,
and it is beyond debate. And that is, if countries like China and
India and Russia are not part of a carbon reduction global pro-
gram, that it does not matter what we do. And that the only effec-
tive actions like this will be to dramatically harm our economy.
If there is any suggestion in the science to the contrary, I would
love to hear it, and I would love to hear forecasts from our Admin-
istration witnesses regarding scenarios where China, India, Russia
and similar powers do not reduce carbon emissions. It has been
made perfectly clear by them, directly from their mouths, that they
have no plans to join such a global regime. And all three are ag-
gressively pursuing natural resource assets around the world and
dramatically increasing energy production from fossil fuels.
Secretary Chu mentions in his testimony that China is spending
$9 billion a month on clean energy. The other side of that coin, the
bigger side of that coin is that they are building two coal-fired
power plants a month and securing oil resources around the globe.
Point No. 2 is the cost of all this. I think it is very significant
that the Obama administration Treasury Department developed a
cost estimate. And their cost estimate, not a Republican one, not
a Heritage Foundation one, but their cost estimate is that the cost
of cap-and-trade would be over $1,700 a year per household. This
would roughly be the equivalent of hiking income taxes by 15 per-
cent. Certainly a little more than a postage stamp a day. And
Treasury stated specifically that “Economic costs will likely be on
the order of 1 percent of GDP, making them equal in scale to all
existing environmental regulation.”
Others have agreed with this, including the President on the
campaign trail: “Under my plan of a cap-and-trade system, elec-
tricity rates would necessarily skyrocket. Whatever the plants
were, whatever the industry was, they would have to retrofit their
operations. That will cost money. They will pass that money on to
consumers.” “Cap-and-trade would increase the cost of energy.”
From Secretary Tim Geithner. “Under a cap-and-trade program,
firms will not ultimately bear most of the cost of the allowances,
but instead would pass them along to their customer in the form
of higher prices.” That is Peter Orszag, as Director of CBO. Of
course, he is now the Obama administration head of OMB.
“Cap-and-trade is a tax, and it’s a great big one.” John Dingell.
And Charlie Rangel, “Whether you call it a tax, everyone agrees
that it’s going to increase the cost to the consumer.”
Point No. 3 is putting points No. 1 and two together. Foreign
competition does nothing like this. We dramatically increase taxes
and costs. And obviously, that significantly hurts jobs and pushes
jobs overseas.
Thank you, Madam Chairman.
[The prepared statement of Senator Vitter follows:]
93
Statement of Hon. David Vitter,
U.S. Senator from the State of Louisiana
Thank you, Chairman Boxer; and I would like to thank the Administration wit-
nesses for their testimony here today and their candor in this most important de-
bate.
As a recently obtained Treasury Department analysis of cap-and-trade stated,
“Economic costs will likely be on the order of 1 percent of GDP, making them equal
in scale to all existing environmental regulation.” As unemployment is headed up-
ward of 10 percent the impact of further job losses by a massive new regulatory pro-
gram could not be overstated.
“Cap-and-trade” is potentially a new stealth tax in the order of magnitude of more
than $1,700 per American household annually. American families can look forward
to an increase in their electricity bills, their gas bills, their food bills and their util-
ity bills. It is clear that most Americans’ standard of living will be reduced.
It doesn’t matter if the study is done by the Energy Information Administration,
the Congressional Budget Office, the National Black Chamber of Commerce, the Na-
tional Association of Manufacturers, the Brookings Institute or the Heritage Foun-
dation — every legitimate economic analysis says that this is a bad idea. The human
impact of these new regulations, job losses, and the increased price of energy should
never be marginalized or ignored.
Senator Gillibrand wrote an insightful op-ed last week in the Wall Street Journal
titled “Cap and Trade Could Be a Boon to New York.” This article provided impor-
tant insight into who will make money and how much. The Senator from New York
stated that “carbon permits could quickly become the world’s largest commodities
market, growing to as much as $3 trillion by 2020.” That is $3 trillion that has to
be generated by the work of America’s farmers, refiners, miners, small businesses
and manufacturers and then redistributed to Wall Street. It will perhaps be the
greatest transfer of wealth in U.S. history. And it may very well he the greatest
scam ever thrust on the people of the United States. This program would be the
equivalent of TARP in perpetuity for a handful of financial institutions that have
already been bailed out once. And you don’t need a Republican to tell you that.
Senator Dorgan recently stated that “I know the Wall Street crowd can’t wait to
sink their teeth into a new trillion-dollar trading market in which hedge funds and
investment banks would trade and speculate on carbon credits and securities. In no
time they’ll create derivatives, swaps and more in that new market. In fact, most
of the investment banks have already created carbon trading departments. They are
ready to go. I’m not.” Senator Dorgan further stated that “For those who like the
wild price swings in the oil futures market, the unseemly speculation in mortgage-
backed securities, or the exotic and risky financial products like credit default swaps
that pushed our economy into the ditch, this cap-and-trade plan will be the answer
to their prayers.”
I look forward to hearing from the Administration on what programs they plan
on cutting to pay for a transfer in our economy from energy jobs that generate mas-
sive amounts of wealth to energy jobs that require massive amounts of subsidies.
I also look forward to the Administration discussing China’s purchase of mineral re-
sources around the world, including rare earth minerals. As well, I am not aware
of any solar project or wind mill that doesn’t require mined or refined materials or
inputs that are derivatives from oil and natural gas.
The CBO has stated that mining and refining jobs will be among the most im-
pacted by the proposed cap-and-trade program. However, nearly every product
made, farmed, built, and manufactured requires some derivative from oil and nat-
ural gas or other minerals. How in the world can it be strategically beneficial for
the United States to become more dependent on mined and refined products from
foreign countries?
Secretary Chu mentions in his testimony the International Energy Agency in his
support for renewable energy technologies. I wonder why he fails to mention that
the same agency has recommended that Germany end its solar subsidies that will
total $115.5 billion by 2013. If the U.S. were to take the same approach as Ger-
many, U.S. consumers could expect their electricity bills to increase by 100 percent.
The Administration’s contention is that a cap-and-trade system along with signifi-
cant subsidies will create a new industry and a lot of high tech jobs. Yet Germany’s
solar producers are now scaling back as they are crowded out by Chinese manufac-
turers.
A critical point in this whole debate is that China, India and Russia have made
unequivocally clear that they have no intention of agreeing to a cap on carbon emis-
sions. As well, all three are aggressively pursuing natural resource assets around
the world and increasing energy production from fossil fuels. It is silly to think that
94
U.S. businesses will be able to compete on the international level when they are
subject to carbon caps and regulation, increased energy costs and an easily manipu-
lated market scheme. Secretary Chu mentions in his testimony that China is spend-
ing $9 billion a month on clean energy. They are also building two coal-fired power
plants a month, are increasing nuclear power generation and are securing oil re-
sources across the globe.
Secretary Chu also mentions Denmark as an example, a country where electricity
prices are more than 200 percent higher than they are in the United States. One
recent study shows that each wind related job in Denmark is taxpayer subsidized
at the rate of $90,000 to $140,000 per job. In fact, the Danes pay more for their
power than anyone in the European Union.
Despite my concerns with the idea of a cap-and-trade program, I do support in-
vestment and research in renewable technologies. I do believe a robust plan for in-
vestment should be in place, but to do so we must not be borrowing money from
China or stealing money from American families under the guise of “global warm-
ing.” The greatest opportunity for investment in new technologies is revenue gen-
erated from increased domestic energy production. Recent analysis suggests that in-
creased domestic resource production could represent $8 trillion in GDP, $2.2 tril-
lion in incremental tax receipts, and perhaps 2 million jobs or more. All without bor-
rowing a dime or increasing taxes even a penny.
Finally, there are significant issues that need to be raised and questions that need
to be answered in regard to this program. Some of those questions include:
(1) Who are the winners and losers under cap-and-trade?
(2) What States benefit, and what States are adversely impacted?
(3) How does it affect the U.S. strategically to be importing more refined mineral
products and refining less domestically?
(4) How are Federal and State treasuries affected by moving from industries that
generate massive amounts of wealth to industries that require massive amounts of
subsidies?
(5) Given that reliable low cost energy is one of the greatest equalizers in the his-
tory of mankind, how are families impacted by dramatically increasing costs?
(6) Who are the benefactors of any “third party” certifying provisions, and how
much money are they anticipating receiving?
(7) Why are Administration officials claiming that “we must reduce our carbon
emissions by 80 percent by mid-century to stabilize atmospheric greenhouse gas con-
centrations” when there are no models or studies to support such statements, espe-
cially without similar reductions from China, India or Russia?
(8) Who are the major investors in the Chicago Climate Exchange, and in what
countries are the assets held?
(9) Why not a single one of the computer models predicted the stabilizing, if not
cooling, atmospheric temperatures the world has experienced over the last 10 years?
(10) If the United States is to sign a binding international agreement, what free-
doms and pillars of the democratic process are we asking American citizens to cede
to an international body?
Thank you, and I look forward to asking questions of these witnesses.
Senator Boxer. Thank you very much, Senator.
Senator Whitehouse.
OPENING STATEMENT OF HON. SHELDON WHITEHOUSE,
U.S. SENATOR FROM THE STATE OF RHODE ISLAND
Senator Whitehouse. Thank you, Madam Chairman.
President Obama said last week at MIT, everyone in America
should have a stake in legislation that can transform our energy
system into one that is far more efficient, far cleaner and provides
energy independence for America. The letters and phone calls I re-
ceived from constituents in Rhode Island overwhelmingly support
clean energy legislation and demonstrate the momentum growing
behind this effort.
Rhode Islanders and Americans across our Nation acutely under-
stand the benefits of becoming the world’s leader in clean energy
technology and the risks of failing in that endeavor. Some States,
like Rhode Island, transitioned at their own expense to cleaner en-
ergy years ago. Other regions of the country are new to this en-
95
deavor. But there is emerging a shared sense of purpose across the
country. Even my colleagues from our coal States, on and off this
committee, are seriously engaged in this discussion for the first
time.
Americans are brought together by our common understanding
that our current fossil fuel energy habit is not sustainable and by
our common recognition that America can and should lead the
world to move to a clean energy economy.
The United States has always been at the forefront of techno-
logical and economic advancement, from Slater Mill at Pawtucket
to the world’s first automobile and airplane, to air conditioning and
the light bulb. We put the hand of man on the Moon, on Mars and
on Venus and opened the computer era with the invention of the
microprocessor and the Internet. It is in America’s DNA to inno-
vate.
The next great economic revolution is the race to clean energy.
Yet America continues to rely today on the same fuels and energy
sources that fed the manufacturing centers and steam engines of
the Industrial Revolution over a century ago. Oil still accounts for
approximately 40 percent of our total energy needs, and 70 percent
of this oil is imported from foreign countries, many of whom, to put
it mildly, are not committed to our best interests.
But we fed the flow to the oil cartel of hundreds of billions of dol-
lars rather than step forward into the clean energy economy that
beckons, promising clean, abundant, renewable American energy
sources. Millions of hard working Americans could be back on the
job, building and servicing an American clean energy infrastruc-
ture.
In the last 10 years, jobs in the clean energy sector have grown
at a rate nearly two and a half times faster than overall jobs. And
these jobs can be created anywhere in the country, including States
like my own State of Rhode Island, where jobs are now most
scarce. We have only begun to scratch the surface. There is strong
and growing domestic demand for wind turbines, solar panels and
advanced batteries. Yet almost half our turbines are imported.
Only 1 of the top 10 solar component manufacturers calls the
United States home. And China, Japan and Korea are taking the
lead in battery research.
As John Doerr testified before this committee, if you list today’s
top 30 companies in solar, wind and advanced batteries, American
companies hold only 6 spots. The Clean Energy Jobs and American
Power Act is key to unshackling America from implicit subsidies to
dirty foreign fuels and putting us on the path toward prosperity
and world economic leadership.
History has stood us at this point of choice. Winston Churchill
described those small agate points on which the balance of the
world turns. We are at one now. We can reach to the clean energy
future that beckons, pave the way for jobs and energy independ-
ence at home and show leadership in the world economy abroad.
Or we can sit idle, beguiled by the money and spin of polluting in-
dustries, and let destiny’s moment pass. The right choice is clear,
and I am confident that we will make it, perhaps ultimately in bi-
partisan fashion.
96
I hope we can act soon, and I for one have not lost hope that
buoyed by a success on health care reform, we can turn swiftly and
with optimism to meeting our responsibilities on this front. I con-
cur with Senator Kerry that we are not moving too quickly. By all
reasonable measures we are all moving, and for a long time have
been moving too slowly.
Thank you, in particular, Madam Chairman, for your inspira-
tional, collegial, passionate and determined leadership. I yield the
remainder of my time.
Senator Boxer. Thank you so very much.
Senator Sanders has come back to join us. We welcome you back,
and then you will speak now and then Senator Cardin, and then
we will get to our panel.
OPENING STATEMENT OF HON. BERNARD SANDERS,
U.S. SENATOR FROM THE STATE OF VERMONT
Senator Sanders. Thank you, Madam Chair. Let me just echo
what Senator Whitehouse has just said. This has been an extraor-
dinary process, and I thank you and Senator Kerry for the open-
ness of that process.
The issue that we are dealing with today is very different than
many of the other issues that we deal with. Do you know why? Be-
cause what we are dealing with is not a political compromise, it is
not just trying to get votes. You are dealing with science. And at
the end of the day, we can have a bill passed and have a great cele-
bration in the White House, and it may not be good enough. Be-
cause as you know, Madam Chair, what we are hearing from vir-
tually all of the scientists that come before this committee, what
are they telling us? What they are telling us is that, we told you
in the past that the problem was serious, but we underestimated
the problem. That if we do not act aggressively, the planet that we
are leaving to our children and grandchildren will be a planet se-
verely damaged in terms of drought, in terms of disease, in terms
of flood, in terms of extreme weather disturbances. According to the
CIA, in terms of national security issues.
And the question is, do we have the brains and the courage to
address that crisis? And at the same time understand that in terms
of our economy, what we are doing is preventing hundreds and
hundreds of billions of dollars of damage a year while, as we go for-
ward, we create millions of good paying jobs. That seems to me a
no-brainer.
So the opportunity that we have right now in terms of energy ef-
ficiency, in my State of Vermont right now, under normal economic
circumstances, we consume less electricity now than we did in the
past, because we have been smart on energy efficiency. And you
know what? We are creating jobs. The Department of Energy gave
a small company in Vermont a grant for capacitors as part of hy-
brid cars. We are creating new jobs doing that, and we thank you
for that grant.
There is a windmill company in the State of Vermont making
wind turbines on the cusp of massive growth providing wind tur-
bines to Alaska and other remote areas. We are creating jobs. Our
rail system today is behind Europe, behind Japan. How many new
97
jobs do we create as we rebuild our rail system and build the trains
that we need right here in the United States of America?
Secretary Salazar has told us that we can produce almost 29 per-
cent of the electricity in this country from solar thermal plants in
the southwestern part of this country. How many thousands of new
construction jobs do we create? We are importing hundreds of bil-
lions of dollars of oil every single year from foreign countries, hun-
dreds of billions of dollars. How many new jobs do we create where
we invest those hundreds of billions of dollars in the United States,
creating a new energy system?
This, my friends, is a no-brainer. The science is there, the eco-
nomics is there, the job creation is there. And if we do not seize
this moment to do the right thing, history will look back at us, and
our children and our grandchildren will say, where were you as
this planet undergoes catastrophic damage? We can do it, and I do
not accept the argument of those on the other side who say this is
a negative for the economy. This is a positive for the economy.
So Madam Chair, I want to thank you, I want to thank Senator
Kerry for your very hard work. And we are going to make this hap-
pen. Thank you.
Senator Boxer. Senator, thank you so very much.
Senator Cardin.
OPENING STATEMENT OF HON. BENJAMIN L. CARDIN,
U.S. SENATOR FROM THE STATE OF MARYLAND
Senator Cardin. Madam Chair, let me also add my congratula-
tions, and thanks for your leadership and Senator Kerry’s leader-
ship. All of us want to make sure we get it right.
But I just hope my colleagues understand the urgency of this
issue. We have to act. We can’t just talk about this. We have to
act. My friend from Ohio and I were together at a meeting with our
European friends. They talked about the urgency in a term that
you don’t hear often hear about climate migrants, people who are
being forced to leave their homes because of drought and flooding,
causing stability issues in Africa and Asia and Europe.
Now, I can take you right here to Maryland, to Smith Island,
Maryland, and you are going to see potential climate migrants
there, as their island is disappearing because of sea level increases
due to global climate change. And of course, we can all give exam-
ples of why it is urgent for us to act in our own individual States.
I talk to our watermen who tell me that with the rising tempera-
tures in the Bay, it is become more and more difficult for juvenile
crabs to survive.
So it is urgent that we act. I think my colleagues understand the
urgency from a national security point of view. We are dependent
upon imported oil, which jeopardizes the security of America. I
think we all understand the economic threats that we go through.
We are held hostage to oil, which affects our economy.
So it is urgent that we get this right. My friend from Vermont
makes a very compelling point about the economic impact of this
legislation. It is going to be positive on jobs. I look at White Marsh,
Maryland, where they are doing the new battery technology with
a grant that the Department of Energy just recently awarded. I
98
thank the Secretary for that innovation, where we are going to lead
in the creation of alternative ways to fuel our automobiles.
Madam Chair, I just really want to take issue from my friend
from Wyoming, as he used his numbers. I am going to ask unani-
mous consent that the congressional research on job loss and infra-
structure job creation on the stimulus be made part of our record.
I just want to quote from one report on that. It says, “Based on two
different estimating procedures, it found that the American Recov-
ery and Reinvestment Act may have added some 1 million jobs to
employers’ payroll in August, 2009, compared to what employment
would have been in the absence of the legislation.”
And my point is this: if we didn’t act, we don’t know how many
jobs we would have lost in our economy. We do know that job
losses have been reduced dramatically. Economists tell us the stim-
ulus package worked.
So on this bill, when we are dealing with energy policies, we
know that American ingenuity will create jobs if given the right in-
centive. And that is what this bill does: it gives the right incentive.
It unleashes what America does best, and that is the economic in-
genuity of its people in solving the problems of energy security, of
dealing with the economic impact of energy and dealing with our
environment.
I just want to applaud the Chairman and Senator Kerry for the
framework of this legislation. Because it provides a way in which
we can deal with alternative and renewable energy sources. It rec-
ognizes nuclear power. By having a friendly carbon footprint it is
given priority in this legislation. And it allows us to invest in life-
styles that are going to be important for America.
All we need to do is visit any European capital and know we
could do much better on transit here in America. Transportation
represents 30 percent of the emissions of greenhouse gases, 70 per-
cent of our oil use. We can do much better. And thank you, Madam
Chair, because your bill gives us the opportunity to invest in that
type of America that will make us more competitive in the future.
You provide the resources to help consumers and energy intense in-
dustries so we make the transition to polluter pays. Polluter should
pay. But we want to make sure the consumers are protected.
And I just want to mention one more aspect of this bill. It is def-
icit neutral. You have provided to make sure that we are not going
to burden our children and grandchildren by additional debt. Look,
I hope we all can work together, Democrats and Republicans. This
is an issue that America is asking us to solve. I think we have the
blueprint to do it. Let’s get down to work.
[The prepared statement of Senator Cardin follows:]
Statement of Hon. Benjamin L. Cardin,
U.S. Senator from the State of Maryland
Madam Chairman, thank you for your hard work and commitment to working
with your committee members to draft the legislation we are considering today. And
to our partners in the Obama administration, thank you for your guidance and com-
mitment to stemming climate change. I look forward to your testimony.
Madam Chairman, we’ve all heard the saying, “necessity is the mother of inven-
tion.” Well it applies to the United States of America right now. At this critical junc-
ture in our Nation’s history, we face an economic crisis, an energy security crisis,
and a global climate crisis.
99
The good news is that the solutions to these problems are intertwined with one
another. And those solutions will come from new American ideas, new American in-
dustries, and a careful approach to maintaining the health of our planet.
I am confident that the work my colleagues and I have put into the legislation
we are considering today will provide the legal framework, business incentives and
consumer protections necessary to move America toward a more prosperous, secure,
clean energy future.
The bill sets ambitious yet essential targets for greenhouse gas emission reduc-
tions. Through the expanded use of existing technologies, particularly in the area
of energy efficiency, we can reach these near-term goals.
The investments this bill makes in renewable and alternative energy sources over
the life of the bill will help us achieve energy security, leave our grandkids a
healthy planet and generate millions of new, well paying jobs in the clean energy
and transportation sector.
How? Well, for one, it will provide the regulatory certainty and incentives that
the energy sector desperately needs to plan and develop the power generation and
delivery systems for the future. This bill will create an environment that will spur
innovation to develop greater domestic energy sources that are clean and affordable.
I am very pleased that this bill makes a significant investment in transportation
infrastructure efficiency and access to transit. The transportation sector is respon-
sible for 30 percent of the United States’ greenhouse gas emissions and 70 percent
of our oil use.
This bill recognizes the role transit will play in reducing vehicle emissions. Ac-
cording to the American Public Transportation Association, public transit currently
saves 37 million metric tons of carbon dioxide emissions per year. If we are going
to reach our targets for cleaner air and a cooler planet, we must invest in public
transportation in this country. I fought hard to make sure this bill would boost
funding for transit so that we can put more people on clean, efficient and convenient
buses, trolleys, subways and rail systems.
The bill helps also helps keep consumer costs low by mitigating cost increases to
ratepayers and providing incentives for energy efficiency. The bill recognizes the
need to provide for a smooth transition period as we move toward a clean energy
economy. This means providing ratepayer cost protections against energy price in-
creases while the energy sector works to shift toward cleaner energy production and
more efficient energy technologies.
The bill pays close attention to the needs of America’s agriculture sector. Farmers
will play an essential role in meeting our emissions targets by developing offsets
that they can sell to help capped carbon emitters meet their compliance require-
ments. Additionally, the manager’s mark increases funding for supplemental agri-
culture programs for farmers to participate in and receive financial benefits from
when they engage in activities that help mitigate greenhouse gases, even if these
activities or projects are not eligible as official offset projects.
The threats climate change brings to our way of life are not theoretical to many
Marylanders. Ask the people of Smith Island who are watching their island vanish
under rising sea levels. Ask Maryland’s watermen whose way of life is disappearing
as rising temperatures destroy the habitat the Chesapeake Bay’s fish, crabs, and
oysters depend on.
Their struggles are mirrored in communities around the globe where droughts,
floods and other natural disasters are already destroying local economies and forc-
ing people to change their way of life and even leave their homes. Dislocation, strug-
gles over scarce resources: our Nation’s top national security minds tell us that cli-
mate change is a real threat to our national security.
This bill allocates critical funds to make sure our wild places and our wildlife do
not disappear. It sets aside money to help States protect their residents against the
impacts of climate change including protecting water supply, defending against sea
level rise, and repairing infrastructure from the damage these changed conditions
will create. It will allow us to invest in third world countries to protect their way
of life and prevent the dislocation that could impact our own safety here, thousands
of miles away.
Congress has taken far too long to address our economic, energy security and cli-
mate crises. This bill will address all three. I am proud of the effort that has gone
into this bill to build consensus. I look forward to working with the Chairman to
advance this bill through committee and eventually to the floor. Let’s get back to
work!
[The referenced information follows:]
100
Job Loss and Infrastructure Job Creation
Spending During the Recession
Linda Levine
Specialist in Labor Economics
October 2, 2009
Congressional Research Service
7-5700
www.crs.gov
R40080
CRS Report for Congress
Prepared for Members and Committees of Congress
101
Job Loss and Infrastructure Job Creation Spending During the Recession
Summary
After the long economic expansion that characterized much of the current decade, the nation
entered its eleventh postwar recession in December 2007. The unemployment rate, which is a
lagging economic indicator, did not start to rise until May 2008 when it jumped 0.5 percentage
points to 5.5%. By December 2008, the unemployment rate exceeded 7.0% and well over
600,000 jobs were lost — the biggest monthly decrease since December 1 974, when another deep
recession was taking place. These labor market indicators and comments equating the latest
recession to the Great Depression intensified congressional interest in passage of legislation early
in 2009 aimed at encouraging creation of new jobs and warding off further loss of jobs. (See CRS
Report R40655, The Labor Market During the Great Depression and the Current Recession.)
To mitigate all but one recession since the 1 960s, Congress chose to increase federal spending on
infrastructure. (See CRS Report 92-939, Countercyclical Job Creation Programs.) But, there are
a number of issues associated with using expenditures on public works to quickly create jobs in
times of recession. (See CRS Report R40107, The Role of Public Works Infrastructure in
Economic Stimulus.)
Public works expenditures traditionally have gone chiefly to construction activities (e.g., building
highways and bridges, dams and flood control structures) which indirectly increase demand in
industries that supply their products to construction firms (e.g., manufacturing). Today, the
definition of infrastructure has been expanded to include green jobs, which include those in
industries that utilize renewable resources (e.g., electricity generated by wind), produce energy-
efficient goods and services (e.g., mass transit), and install energy-conserving products (e.g.,
retrofitting buildings with thermal-pane windows).
A question that typically arises during congressional consideration of economic stimulus
legislation is which approach produces the most bang for the buck. In the instant case, this means
how many jobs might be supported by federal expenditures on traditional and green infrastructure
projects. Once stimulus legislation is signed into law, the focus of Congress customarily turns to
estimates of the number of jobs that result as federal funds are allocated to specific activities.
Therefore, after briefly examining the trend in employment and unemployment since the
recession’s -onset, the report turns to an in-depth look at estimates of job creation, including the
limitations of the methodology often used to derive them and the difficulties associated with
developing job estimates for green infrastructure in particular. The report closes with a review- of
what is known to date about the number of jobs supported by infrastructure spending among other
provisions in the American Recovery and Reinvestment Act (ARRA. P.L. 1 11-5). Section 1512
requires entities that receive ARRA appropriations from federal agencies, totaling approximately
S27 1 billion, to include in quarterly reports the number of jobs created or maintained as a result.
Section 1513 requires the Council of Economic Advisors to report quarterly on the effect of
ARRA provisions on employment and other economic indicators.
Congressional Research Service
102
Job Loss and Infrastructure Job Creation Spending During the Recession
Contents
Employment and Unemployment Through Job Loss 1
Infrastructure Spending and Job Creation Estimates 4
Job Creation Estimates: What Are They? 5
Some Caveats 6
The Multiplier Effect 6
Job Estimates and Construction Spending 7
The Federal Highway Administration 7
BLS Employment Requirements Table 8
BEA’s Regional Input-Output Modeling System (RTMS II) 9
Job Estimates and Green Infrastructure Spending 10
Measuring Jobs Supported by Spending Provisions in the American Recovery and
Reinvestment Act 12
Tables
Table 1. Payroll Jobs at Nonfarm Employers 2
Table 2. Number of Payroll Jobs by Industry 3
Table 3. Number of Direct and Indirect Jobs by State Dependent on an Expenditure of SI
Billion in the Construction Industry 9
Contacts
Author Contact Information 13
Congressional Research Service
103
Job Loss nnd Infrastructure Job Creation Spending During the Recession
A fter the long economic expansion that characterized much of the current decade, the
nation entered its eleventh postwar recession in December 2007. The unemployment rate,
which is a lagging economic indicator, did not start to rise until May 2008 when it
jumped 0.5 percentage points to 5.5%. By December 2008, it exceeded 7.0% according to data
from the U.S. Bureau of Labor Statistics (BI.S). Well over 600,000 jobs were lost in December
2008 — the biggest monthly decrease recorded by the BLS Current Employment Statistics
program (CES) since December 1974, when another deep recession was taking place.
The Business Cycle Dating Committee of the National Bureau of Economic Research, the official
arbiter of peaks and troughs in the business cycle, announced at the end of November 2008 that a
substantial and widespread decline in economic activity had begun a year earlier. December 2007
marks both the end of the 73-month economic expansion that began in March 2001, and the
beginning of the latest recession. As part of its announcement, the committee noted that it “views
the payroll employment measure, which is based on a large survey of employers, as the most
reliable comprehensive estimate of employment. This series [the CES] reached a peak in
December 2007 and has declined every month since then.”
The committee’s announcement intensified congressional interest in passage of legislation aimed
at encouraging creation of new jobs and warding off further loss of jobs. So. too, did comments
equating the recession to the Great Depression. (See CRS Rqiort R40655, The Labor Market
During the Great Depression and the Current Recession.)
To mitigate all but one recession since the 1960s, Congress chose to increase federal expenditures
on infrastructure (public works), thereby directly raising demand for goods and services to offset
the reduced demand of consumers. (See CRS Report 92-939, Countercyclical Job Creation
Programs.) But, there are a number of issues associated with using spending on public works to
quickly create jobs during a recession. (See CRS Report R40107, The Role of Public Works
Infrastructure in Economic Stimulus.)
When Congress considers spending on infrastructure to help stimulate a flagging economy, “how
many jobs are created” is a commonly asked question. After first briefly examining trends in job
loss since the latest recession began, this report focuses on job creation estimates associated with
increased spending on traditional and so-called green infrastructure, placing a heavy emphasis on
explaining the methodology often used to derive them and the difficulties associated with
developing estimates for green infrastructure in particular.
Once stimulus legislation is signed into law, the focus of Congress customarily turns to estimates
of the number of jobs that result as federal funds are allocated to specific activities. In the case of
the American Recovery and Reinvestment Act (ARRA. P.L. 1 1 1-5). Congress included language
requiring entities that receive ARRA appropriations from federal agencies to report the number of
jobs created or maintained as a result and requiring the Council of Economic Advisors to report
on the employment and other economic effects of ARRA provisions. The report closes with a
review of what is known to date about the number of jobs associated with the stimulus act.
Employment and Unemployment Through Job Loss
As shown in Table 1, employment on nonfarm payrolls has steadily declined since December
2007. The number of job cutbacks intensified starting in late 2008. Of the 7.2 million jobs lost
since the recession’s onset, the majority have disappeared since November 2008.
Congressional Research Service
1
104
Job Loss and Infrastructure Job Creation Spending During the Recession
Table I. Payroll Jobs at Nonfarm Employers
(seasonally adjusted employment in thousands)
Year by Month
Total Employment
Private Sector Employment
2007
December
138,152
115,783
2008
January
138,080
115,689
February
137,936
1 15,515
March
137,814
115,373
April
137,654
115,203
May
137,517
1 14,029
June
137.356
114,834
July
137,228
115,691
August
137,053
1 14,497
September
136,732
114,197
October
136,352
113,813
November
135,755
113,212
December
135,074
1 1 2.542
2009
January
134,333
111,793
February
133,652
111,105
March
133,000
110,457
April
132.481
109,865
May
132,178
109,573
June
131.715
109,182
July
131,411
108,936
August
I3l,2l0(p)
108,754
September
I30,947(p)
108.544
Source: U.S. Bureau of Labor Statistics, data from the Current Employment Statistics program.
Notes: (p) = preliminary.
As is typical during economic downturns, employees in the goods-producing sector have been the
most adversely affected. They saw their ranks shrink by almost 3.6 million between December
2007 and September 2009. (See Table 2.) Workers in the sector’s construction industry began
experiencing job losses before the economy-wide downturn began. Nonetheless, between the
recession’s onset and September 2009, construction firms cut almost 1 .5 million jobs. Across all
manufacturing industries, employment fell by 2, 1 million as well. Although manufacturing job
losses have been widespread, two industries that produce durable goods — fabricated metal
products (e.g., hardware, wire, and screws) and transportation equipment (e.g., motor vehicles
and parts) — have been particularly hard hit.
Congressional Research Service
2
105
Job Loss and Infrastructure Job Creation Spending During the Recession
Table 2. Number of Payroll Jobs by Industry
(seasonally adjusted employment in thousands)
Industry by
Sector
Employment,
December 2007
Employment,
September 2009 (p)
Goods-producing sector
22.043
18.465
Mining and togging
743
708
Construction
7.523
6,038
Manufacturing
13.777
1 1,719
Service-providing sector
1 16,109
1 12,482
Trade, transportation and
utilities
26.725
25,092
Wholesale trade
6.045
5,649
Retail trade
15,568
14,700
Transportation and
warehousing
4,555
4,178
Utilities
557
565
Information
3,025
2,826
Financial activities
8,243
7,702
Professional and business
services
18,109
16,597
Education and health services
18,570
19.31 1
Leisure and hospitality
13,551
13,154
Other services
5,517
5.397
Government
22,369
22,403
Source: U.S. Bureau of Labor Statistics, daca from the Current Employment Statistics program.
Notes: (p)=preliminary.
Employment in the service-providing sector most recently peaked in December 2007, when the
recession began. Although some service-providing industries have continued to grow — utilities,
education and health services — cutbacks elsewhere have far outweighed their gains. As shown in
Table 2, these industries reported higher employment in September 2009 than at the start of the
recession. In contrast, the financial activities industry began to lose jobs before the advent of the
economy-wide downturn. This mirrors the above-mentioned trend in construction employment in
part because real estate is a component of financial activities and it, like construction, has been
hurt by the collapse of the housing market. Other components of financial activities, such as
brokerage firms that packaged high-risk mortgages and the investors (e.g., banks) that purchased
them, have been negatively affected by the housing market downturn as well.
Despite a marked slowdown in the pace of job loss in recent months and the widely expressed
belief that the recession ended this summer, the prospect of steady job growth beginning in the
near term looks dim according to a CRS analysis of employment trends after the end of the prior
ten recessions. In all but one instance.
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“the number of jobs on employer payrolls fluctuated for months.... Sustained job growth
occurred within three to five months of the start of seven recoveries. In sharp contrast, steady
job growth did not commence until March 1 992 — 12 months after the July 1 990-March 1 99 1
recession ended — and not until September 2003—22 months after the March-November
2001 recession ended.” 1
The unemployment rate in September 2009 rose to 9.8% from 5.0% in December 2007, according
to RLS data derived from the Current Population Survey." The Blue Chip Economic Indicators
reported that the latest consensus forecast among the nation’s leading business economists is that
the unemployment rate will continue to rise to 10% or higher and “recede from that level only
grudgingly” during the last six months of 2010. Most of these economists think it will not “be
until the second half of 2012, or later, before the unemployment rate fulls below 7 percent on a
sustained basis.” 3
Infrastructure Spending and Job Creation Estimates
When in response to a recession Congress has acted to create jobs by raising demand for goods
and services through increased federal spending, it often has chosen to direct the funds to
infrastructure (public works) activities. Other means of direct countercyclical job creation —
employment tax credits, state revenue-sharing, and public service employment — have been relied
on much less often. 4
A more expansive definition of infrastructure than was used in the past is now under
consideration. Historically, public works has been synonymous with heavy and civil construction
activities (e.g., road and bridge building, flood control structures and dam building). Today, it
includes so-called green jobs. Although numerous studies on the emerging green economy have
been released in the last several years, no consistent definition of green jobs exists at present.
Green jobs seemingly are those in and related to industries that utilize renewable resources to
produce their outputs (e.g,, energy generated by wind, solar, and geothermal technologies) and
jobs in and related to industries that produce energy-efficient goods (e.g., Energy Star appliances
and equipment) and services (e.g., intra- and inter-city mass transit).' For this reason, the
following discussion focuses on what is known about the job-generating impact of infrastructure
spending broadly defined.
The section below begins with an in-depth examination of how job creation estimates usually are
developed. The focus then narrows to look at two models that can be used to calculate the number
of jobs nationwide dependent upon demand in the construction industry among other industries,
and one model that can be used to calculate the number of jobs by state dependent on the
construction industry among other industries. The section ends by reviewing the difficulties that
researchers encounter in estimating the number of jobs supported by expenditures on green
! CRS Report R40798, Unemployment and Employment Trends Before and After the End of Recessions, by Linda
Levine.
2 Data from the Current Population Survey of households is available at http://stats.bls.gov/cps.
"Recession Finished, Say Blue Chip Analysts," Daily Labor Report , September 10, 2009.
4 CRS Report 92-939, Countercyclical Job Creation Programs , by Linda Levine.
Related jobs include, for example, those in industries that manufacture wind turbines and install thermal-pane
windows.
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infrastructure and the consequent caution that should be taken when utilizing these estimates in
particular.
Job Creation Estimates: What Are They?
Interest in how many jobs are created by a particular type of economic activity has surfaced when
the economy is in a downturn and policymakers seek to compare the relative advantages of
different stimulus options. It also has arisen when policymakers want to know the impact of
shifting expenditures front one federal budget category to another (e.g., away from defense and
towards social services progrants). Unless there is an increase in total spending, however, the
number of jobs in the labor market would remain largely unchanged. 6
Although there are other bases upon which to develop estimates of the number of jobs created by
a given economic activity, an input-output (I-O) model of the economy often is utilized due to its
cost-effectiveness. ' An 1-0 model describes the interrelationships between industries in the
production process, showing how the dollar value of a sale is distributed across industries at a
particular point in time. It thus reflects how much of the purchased product comes from final and
supplier industries. An 1-0 table might show, for example, the dollar value of roof trusses
produced by the veneer, plywood, and engineered wood products manufacturing industry and the
dollar value of bricks produced by the clay product and refractory manufacturing industry used by
the construction industry to erect residential buildings.
The output requirements from each industry must then be converted to employment requirements.
Employment requirements are derived from productivity estimates for each industry at a
particular point in time. The total employment requirement associated with a given type of final
demand (e.g., a water reuse program) is the employment in the industry producing the final
product or service and in the supplier industries. In other words, it is an approximation of both the
direct and indirect employment dependent upon/supported by the economic activity. It commonly
is expressed as the number of jobs per billion dollars of expenditures valued in a particular year's
dollars.
Like an 1-0 table, an employment requirements table is a matrix of hundreds of columns and
rows. Each column displays the number of jobs supported in each of the industry rows by an
expenditure o f one billion dollars in the column industry. For example, one billion dollars spent in
the construction industry supports (direct) employment in the various components of that industry
(e.g., residential and commercial building, highway and bridge building) and (indirect)
employment in the many industries that supply their goods and services to the construction
industry (e.g., asphalt shingle manufacturing, fabricated metal bridge section manufacturing). An
employment requirements table thus permits estimation of the varying impact of an expenditure
on different industries and the varying impact of different kinds of expenditures.
‘ Small differences' in the total number of jobs could occur at the same spending levels if the economic activities to
{ from) which funds were being shitted were more (less) capital-intensive, for example.
7 Another basis for estimating the impact of policy and other changes on the economy is conducting surveys. According
to the US. Bureau of Economic Analysis (BBA), the advantage of the 1-0 approach to making impact estimates is the
accessibility of the data sources required to develop the 1-0 model.
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Some Caveats
1-0 models freeze technology and productivity at a particular point in time. Thus, the job-
generating potential of an economic activity undertaken today could differ from that of an earlier
period if there were technological and productivity improvements in the intervening years.
Similarly, the estimates often are stated in terms of the number of jobs created for every billion
dollars of expenditures, but a billion dollars spent in one year could buy less (more) than a billion
dollars spent in another year depending on changes in price levels over time.
There also could be differences in estimated versus actual job creation because 1-0 models
assume that resources are unlimited. If, for example, the economy was performing at a fairly high
level with plants operating near full capacity and with fairly few workers unemployed, the actual
number of new jobs might fall short of the estimate due to capital and tabor constraints. This is
less likely to matter during a broad-based economic downturn.
Further. 1-0 tables do not necessarily differentiate between imported and domestically produced
goods. As a consequence, the domestic employment impact of expenditures might be overstated
to the extent that inputs are imported. Similarly, 1-0 tables typically do not express employment
in terms of full-time equivalents (i.e., both full-time and part-time jobs are counted equally).
Thus, programs which draw upon industries that rely relatively more on part-time workers (e.g.,
retail trade) might appear to create more jobs than programs that draw to a greater extent on
industries employing relatively more full-time workers (e.g., manufacturing).
The Multiplier Effect
A more comprehensive estimate of the number of jobs created by a particular type of economic
activity has three components, namely,
• the number of jobs directly attributable to the activity,
• the number of jobs indirectly attributable to the activity, and
• the number of jobs induced throughout the economy as a result of the activity.
Induced jobs are those dependent upon the purchases of persons in direct and indirect jobs. For
example, workers who are directly or indirectly employed as the result of a highway construction
program might spend some portion of their wages in their communities at grocery stores, auto
repair shops, and movie theaters.
Estimates of induced jobs or the multiplier are considered tenuous. To calculate the multiplier
effect, one must estimate how much of the additional money earned by directly and indirectly
employed workers will likely be spent versus saved. The actual number of jobs created by this
added spending will further depend on economic conditions (e.g., the availability of labor, the
inflation rate). As a result, there are widely varying estimates of the multiplier effect and those job
creation studies that include induced employment utilize different multipliers.
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Job Estimates and Construction Spending
The Federal Highway Administration
Perhaps the most widely known estimate of the employment impact of federal spending on out-
nation ’s roads comes from the Federal Highway Administration (FHWA). Although the FHWA
twice updated its 1997 analysis, which estimated that $1 billion of federal-aid highway
expenditures plus a S250 million state match supported 47,575 jobs, some proponents of
stimulating job growth through increased federal spending on infrastructure continue to use this
figure. The most recent update by the FHWA to 2007 indicates that a SI. 25 billion expenditure on
highway construction consisting of SI billion from the federal government and S250 million from
state government could support 34,779 jobs. If a state match is not required, “then SI billion in
Federal funds supports 27,800 jobs.” 8 The jobs number has decreased over time in part because of
increases in the price of inputs, such as asphalt and diesel fuel.
The FHWA breaks down the estimate of 27,822 jobs per billion dollars of federal spending on
highways as follows;
• 9,536 construction-oriented jobs (i.e., jobs at construction companies working on
the projects and at businesses that provide direct inputs to the projects such as
asphalt, concrete, and guard rails);
• 4,324 jobs in supporting industries (i.e., employment at firms that provide inputs
to the industries directly providing the materials and equipment utilized in
highway construction such as producers of sheet meta! who supply the
manufacturers of guard rails); and
• 13,962 induced jobs (i.e., jobs throughout the economy dependent upon
consumer expenditures from the wages of workers in “construction-oriented” and
“industry-supporting” jobs).
Thus, the multiplier effect accounts for one-half of the total estimate.
The FHWA notes one caveat about 1-0 analysis in addition to those mentioned above, that is, the
job estimate “utilizes the national average mix of construction materials and labor inputs. Specific
projects and local utilization ratios will alter the estimated number of jobs supported.” For
example, a different combination of materials and number of workers might be required for road
resurfacing projects compared to bridge building or commuter rail projects.
The FHWA also states that
[t]he employment figures have recently been used as a justification for including highway
spending in an economic stimulus package. But with the exception ofshort-term resurfacing
* U.S. Department of Transportation, Federal Highway Administration, Employment Impacts of Highway Infrastructure
Investment, p. 1 , http://www.fhwa.dot.gov/policyotps/publications.htm.
J U.S. Department of Transportation. Federal Highway Administration, Employment Impacts of Highway Infrastructure
Investment, p. 2, http:. 7www.fhwa.dot.gov/policy/otps/publications.htm.
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and preservation projects, highway funds spend out slowly, with only 27% of a project, on
average, outlaying in the first year. 10
BLS Employment Requirements Table
In recognition of the fact that “people want to assess the impact on employment of different
policies or actions,” the U.S. Bureau of Labor Statistics (BLS) makes available electronically
free-of-charge to the public the employment requirements tables it develops as part of its
employment projections program." 1-0 and employment requirements tables developed and
utilized by others often are proprietary and not made widely available.
The employment requirements tables are based on the official 1-0 tables for the nation that the
U.S. Bureau of Economic Analysis (BEA) develops every five years. BLS takes the latest
national 1-0 table available from BEA - in this case, 1997 - and updates it to reflect more recent
production and distribution technologies. It then utilizes the updated 1-0 table and recent labor
productivity data to develop an employment requirements table. Because the base year for the
most recently published employment projections is 2006, the latest employment requirements
table reflects 2006 technologies of production and distribution as well as labor productivity.
The BLS employment requirements table provides information for the construction industry as a
whole. The construction industry, according to the North American Industry Classification
System, is composed of three major subdivisions:
• construction of buildings (residential and nonresidential),
• heavy and civil engineering construction (highway, street, and bridge
construction; utility system construction; construction of flood control structures,
dams, and hydroelectric power generation facilities), and
• specialty trade contractors (foundation, structure, and building exterior
contractors; building equipment contractors; building finishing contractors).
The BLS employment requirements table shows 1 1 ,768 jobs directly and indirectly dependent
upon SI billion of spending on construction. A majority of the jobs are in the construction
industry itself (i.e., 6,925 direct jobs).
The figure from the BLS employment requirements table for construction expenditures (1 1,768)
is somewhat lower than the direct and indirect jobs figure for highway expenditures from the
FHWA (1 3,860). Potential explanations for the disparity include differences in industry definition,
data sources, method of updating the model, and time period.
The employment requirements available from BLS do not break out other types of construction
that have been discussed as part ol'a federal job creation package (e.g., public school
construction). BLS formerly conducted surveys to estimate full-time year-long employment
associated with a variety of different construction activities, including new' schools, hospitals,
K U.S., Employment Impacts of Highway Infrastructure Investment, U.S. Department of Transportation, Federal
Highway Administration, p. 2. http://www.t1iwa.diA.gov/poticy/otps/pubNcations.htm.
n U.S. Bureau of Labor Statistics, Layout and Description for 201-order Employment Requirements Tables ,
Washington, D.C., December 2007. p. 3, http://stats.bis.gov/einp/empind4.htin
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water and sewer facilities, roads, mass transit, and maintenance and repair construction. The
survey information was last updated a few decades ago, however.
BEA's Regional Input-Output Modeling System (RIMS II)
From its Regional Input-Output Modeling System (RIMS II), the BEA produces estimates by
geographic area of the employment, earnings, and output dependent on additional spending in
hundreds of different industries. 12 For a fee to most parties, BEA currently utilizes either the 1997
benchmark 1-0 for the nation or the 2006 annual 1-0 for the nation adjusted by 2006 data from its
regional economic accounts to provide these estimates at the subnational level. 13
As shown in Table 3. the number of jobs directly and indirectly supported by an expenditure of
SI billion in the construction industry in a given state ranges widely. The main reason for the
disparity in job creation estimates is that each state has a different mix of industries within its
borders. As a consequence, one state varies from the next in its capacity to supply all the
intermediate goods needed to carry out construction projects. A secondary explanation is that
earnings vary by state.
Table 3. Number of Direct and Indirect jobs by State Dependent on an Expenditure
of $1 Billion in the Construction Industry
State
Number of Jobs
State
Number of Jobs
Alabama
15,851
Montana
16,127
Alaska
11.009
Nebraska
13,946
Arizona
12,238
Nevada
11,459
Arkansas
1 5,306
New Hampshire
12,374
California
1 2,289
New Jersey
11,118
Colorado
12,575
New Mexico
14,279
Connecticut
10,709
New York
10,106
Delaware
9,518
North Carolina
15,555
District of Columbia
1,874
North Dakota
13,500
Florida
13,127
Ohio
14.391
Georgia
14,224
Oklahoma
16,232
Hawaii
1 1,614
Oregon
13,184
Idaho
1 5,860
Pennsylvania
1 2,390
Illinois
11,916
Rhode island
10,767
Indiana
13,747
South Carolina
15,319
12 for additional information on RIMS 11 see BEA, Regional Multipliers: A User Handbook for the Regional Input -
Output Modeling System* http://wavw.bea.gov/scb/pdf/regional/perine/meth/rims2. pdf.
More specific detail by industry is available from the 1997 benchmark 1-0 than from the annual 1-0. Therefore,
Table 1 (Number of Direct and Indirect Jobs Per $ 1 Million of Output Produced by the Water, Sewage and Other
Systems Industry) in CRS Report R40I07, The Role of Public Works Infrastructure in Economic Stimulus , was drawn
from the 1997 benchmark 1-0 because the 2006 annual i-0 provides data only for the utilities industry as a whole.
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State
Number of Jobs
State
Number of Jobs
Iowa
14,330
South Dakota
15,316
Kansas
13,625
Tennessee
14,556
Kentucky
15,039
Texas
1 2,985
Louisiana
13,731
Utah
14,692
Maine
15,988
Vermont
14,883
Maryland
10,687
Virginia
1 2,085
Massachusetts
10,714
Washington
12,171
Michigan
13,354
West Virginia
13,834
Minnesota
12,998
Wisconsin
13,673
Mississippi
15,357
Wyoming
13,091
Missouri
13,241
United States
14,315
Source: Prepared by CRS from RIMS II estimates supplied by the BEA Regional Product Division.
Job Estimates and Green Infrastructure Spending
Estimating the number of jobs dependent upon green infrastructure activities presents a greater
challenge than estimates related to infrastructure projects as traditionally defined. The basis for
most data collection by U.S. statistical agencies is the North American Industry Classification
System (NAJCS). It currently does not identify separately so-called green industries (e.g., those
that utilize renewable resources to produce their outputs, those that manufacture goods which
minimize energy use). For example, the NAICS disaggregates the electric utility industry into
hydroelectric, fossil fuel, nuclear, and other power generation, transmission, and distribution.
Such renewable sources of energy production as wind, solar, and biomass are not uniquely
recognized; they are included in the ‘‘other” category. If harnessing the wind to produce
electricity and plant material to produce biofuel requires a substantially different mix of inputs
than relying on coal and gasoline, for example, the conventional 1-0 model does not seem well-
suited as a basis for estimating the number of jobs supported by these green activities. Similarly,
within NAICS, the construction industry does not have a unique category for retrofitting (e.g.,
installing additional insulation, fluorescent lighting, or energy-efficient heating and air-
conditioning systems). Retrofitting likely requires a combination of inputs from supplier
industries that differs from the mix for the top-lo-bottom construction of buildings, once again
making use of convent ional 1-0 models problematic.
This recognized difficulty generally is either not mentioned, or how it is dealt with is not
described, in the analyses of green job creation. One study, commissioned by the Center for
American Progress that is discussed in more detail below, does address the problem. The
researchers explain that because “the U.S. government surveys and accounts that are used to
construct the input-output tables do not specifically recognize wind, solar, biomass, building
retrofitting, or new mass transit as industries in their own right,” they created synthetic industries
by combining parts of industries for which data are available. The researchers provided an
example in the case of the biomass “industry;” they constructed it by combining farming, forestry,
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wood products, and refining industries; then they “assigned relative weights to each of these
industries in terms of their contributions to producing biomass products,” 14
Further complicating the matter is the context and manner in which estimates of green jobs
generally are presented. Studies often develop employment projections based on differing sets of
assumptions and time horizons. For examp le, the number of direct and indirect jobs some 10 or
more years in the future supported by an assumed increase in the demand for energy that is met
by an assumed shift during the projection period from coal to wind and geothermal power
generation. Some reports also include induced employment, but this is not always made clear. In
addition, some analyses relate to a particular state. Their results may not be genera tizeable to
other areas because state economy’s have different mixes of industries and may not be able to
provide any or all of the inputs for a particular green output. Additionally, the assumptions and
methodologies underlying the job creation estimates often are not clearly articulated, which
makes thoughtful review of the results very difficult.
It should be noted that many of the studies by green economy proponents that were available
when Congress was crafting stimulus legislation had not been conceived for the purpose of
quickly stabilizing or increasing the number of jobs in the nation or in industries particularly hard
hit by the recession. Job creation estimates from two organizations that proposed broad-based
green economy strategies intended in part to stimulate the deteriorating labor market are briefly
described below.
• The September 2008 report. Green Recovery: A Program to Create Jobs and
Start Building a Low-Carbon Economy, was commissioned by the Center for
American Progress (a research and educational institute). It represents an
acceleration of a 10-year program included in a 2007 report ( Capturing the
Energy Opportunity: Creating a Low-Carbon Economy ). The 2008 report’s
authors at the Department of Economics and Political Economy Research
Institute (University of Massachusetts - Amherst), who relied on 1-0 analysis,
estimate that almost 2 million jobs (935,200 direct jobs, 586,000 indirect jobs,
and 496,000 induced jobs) could be created or preserved by a two-year SI 00
billion “green economic recovery program.” Of the SI 00 billion total. S46 billion
would be in the form of federal spending for such activities as public building
retrofits, mass transit and freight rail expansion, and smart electrical grid
development. Much of the remainder would be in the form of tax credits to
encourage businesses and homeowners to retrofit commercial and residential
buildings. The authors acknowledge that not all of the green activities
can contribute equally to a short-term green economic recovery program. Some ... strategies
are dearly capable of delivering within a year, while others will require as long as two years
to be implemented.' 5
• In December 2008. the Apollo Alliance (a coalition of labor, environmental,
business and community leaders) proposed The Apollo Economic Recovery Act.
H Robert Poliin, Heidi Garrett-Pelticr, and James Heintz, et ai.. Green Recovery: A Program to Create Good Jobs and
Stan Building a Low-Carbon Economy, Center for American Progress, Washington, D.C., September 2008, p. 20.
Iittp://www.ameri canprogress.org.
15 Robert Poliin, Heidi Garrett-Peltier, and James Heintz, et at.. Green Recovery: A Program to Create Good Jobs and
Start Building a Low-Carbon Economy, Center for American Progress, Washington, D C, September 2008, p. 5,
http://www.aniericanprogress.org.
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It is an initial step toward achievement of a 10-year S500 billion program to
create 5 million green-collar jobs, which had been released in September 2008.
The new initiative calls for federal spending of about S50 billion to create or
maintain more than 650,000 direct jobs and 1.3 million indirect jobs. The
derivation of these job creation figures is not always clear, appearing to rely
much of the time on spending-to-jobs relationships estimated by other
organizations. The proposed allocation of federal funds and associated job
estimates include S10 billion to improve the efficiency and reliability of the
electric transmission grid (131,000 direct and indirect jobs), $8 billion to repair
roads and bridges (278,000 direct and indirect jobs), and S8 billion to encourage
localities to replace aging buses and trains with U.S.-made clean-energy vehicles
(37,600 direct jobs in vehicle manufacturing and 167,000 indirect jobs).
Measuring Jobs Supported by Spending Provisions
in the American Recovery and Reinvestment Act
While crafting the American Recovery and Reinvestment Act (ARRA), Congress was concerned
about timely tracking of the number of jobs whose creation or maintenance results from the
legislation. The 1 1 1 Congress therefore addressed this matter in bill language much more than
prior Congresses had in countercyclical job creation legislation. At Title XV — Accountability and
Transparency of Division A — Appropriations Provisions, P.L. 111-5 requires entities that receive
ARRA appropriations from federal agencies (e.g„ grant, loan, or contract recipients; states) to
include in their quarterly reports to the agencies estimates of the number of direct jobs created
and retained by infrastructure projects, for example. Recipients of recovery funds must make their
first submission of the required information in October 2009, and the agencies must post the
contents of the reports on websites 30 days after the end of each calendar quarter. The Office of
Management and Budget (OMB) is directed to provide guidance to help recipients prepare the
reports, including the development of job estimates. 16 The act further charges the Congressional
Budget Office and the Government Accountability Office with commenting on the job estimates
contained in the reports within 45 days after they have been submitted to federal agencies.
P.L. 1 1 1-5 additionally tasks the Council on Economic Advisers (CEA) with submitting quarterly
reports to the Committees on Appropriations on the effect of ARRA-provisions on employment
and other economic indicators. The CEA's mandate thus extends well beyond the above-described
reporting requirements, which apply only to $271 billion in direct government investment
spending out of a total of $787 billion. 17 Accordingly, as well as utilizing the direct job estimates
provided by recipients of investment spending under ARRA. the CEA anticipates incorporating
into its macroeconomic model the data the Treasury and the OMB are collecting weekly on tax
cuts and other spending.
1,5 Office of Management and Budget. Implementing Guidance for the Reports on Use of Funds Pursuant to the
American Recovery and Reinvestment Act qf 2009, M-09-21, Washington, D.C., June 22, 2009.
1 The remaining ARRA funds fall into five categories, as the Council of Economic Advisors states in Estimates of Job
Creation from the American Recovery and Reinvestment Act of 2009 (May 2009, p. 2): “individual income tax cuts; a
two-year patch to the alternative minimum tax; Investment incentives; aid to people directly hurt by the recession; and
state fiscal relief.”
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The first quarterly report of the CEA was issued in September 2009. Based on two different
estimating procedures, it found that ARR A might have added some one million jobs to employer
payrolls in August 2009 compared to what employment would have been in the absence of the
legislation. The CEA focused on the impact of the state fiscal relief contained in ARRA because
S3 8.4 billion had been provided to the states by August, which “represents almost half of outlays
and one-quarter of total ARRA stimulus (that is, outlays plus tax reductions).” 1 * A positive
relationship was estimated between the fiscal relief thus far provided to states and employment in
state and local government as well as in the education and health care industries.
Author Contact Information
Linda Levine
Specialist in Labor Economics
llevine@crsJoc.gov, 7-7756
ls Council of Economic Advisers, The Economic impact of the American Recovery and Reinvestment Act of 2009, First
Quarterly Report, Washington, DC, September 10, 2009, p. 33.
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Economic Stimulus: Issues and Policies
Jane G. Gravelle
Senior Specialist in Economic Policy
Thomas L. Hungerford
Specialist in Public Finance
Marc Labonte
Specialist in Macroeconomic Policy
October 6, 2009
CRS Report for Congress
Prepared for Members and Committees of Congress
Congressional Research Service
7-5700
wvw.crs.gov
R40I04
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Economic Stimulus: Issues and Policies
Summary
Recent policies have sought to contain damages spilling over from housing and financial markets
to the broader economy, including monetary policy, which is the responsibility of the Federal
Reserve, and fiscal policy, includinga tax cut in February 2008 ofS150 billion and two
extensions of unemployment compensation in June and November of 2008.
In 2008 and early 2009, the government intervened in specific financial markets, including
financial assistance to troubled Firms and legislation granting authority to the Treasury
Department to purchase S700 billion in assets. The broad intervention into the financial markets
has been passed to avoid the spread of financial instability into the broader market but there are
disadvantages, including leaving the government holding large amounts of mortgage debt.
With the worsening performance of the economy beginning in September 2008, Congress passed
and President Obama signed a much larger stimulus package composed of spending and tax cuts.
The American Recovery and Reinvestment Act of 2009 (ARRA, RL. 11 1-5), a S787 billion
package with $286 billion in tax cuts and the remainder in spending, was signed into law on
February 17, 2009. It includes spending for infrastructure, unemployment benefits, and food
stamps, revenue sharing with the states, middle class tax cuts, and business tax cuts.
The need for additional fiscal stimulus depends on the state of the economy. The National Bureau
of Economic Research (NBER), in December 2008, declared the economy in recession since
December 2007. Growth rates, after two strong quarters, were 2.1% in the fourth quarter of 2007,
slightly negative in the first quarter of 2008, positive in the second quarter, a negative 2.7% in the
third quarter, and a negative 5.4% in the fourth quarter. Estimates put growth at a negative 6.4%
for the first quarter of 2009, the worst since 1982; estimates indicate negative growth of 0.7% in
the second quarter of 2009. According to one data series, employment fell in every month of
2008. The unemployment rate, which rose slightly in the last half of 2007, declined in January
and February of 2008, but began rising in March 2008 and in September 2009 stood at 9.8%.
Some forecasters believe that the ongoing financial turmoil will result in a recession that is deeper
and longer than average.
Fiscal policy temporarily stimulates the economy through an increase in the budget deficit, which
leads to an increase in total spending in the economy, either through direct spending by the
government or spending by the recipients of tax cuts or government transfers. There is a
consensus that certain proposals — ones that result in more spending, can be implemented quickly,
and leave no long-term effect on the budget deficit — would increase the benefits and reduce the
costs of fiscal stimulus relative to other proposals. Economists generally agree that spending
proposals are somewhat more stimulative than tax cuts because part of a tax cut may be saved by
the recipients. The most important determinant of the effect on the economy is the stimulus' size.
The 2008 stimulus package increased the deficit by about 1% of GDP. The ARRA would increase
the budget deficit by about 1.3% in 2009 and an additional 2.2% (or 3.5% overall) in 2010. The
Congressional Budget Office (CBO) projects that the ARRA would raise GDP by a range of 1 .4%
to 3.8% in 2009 compared with what it otherwise would have been.
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Contents
Introduction
The Current State of the Economy
The 2009 Stimulus Package
Preliminary Discussions
House Proposal
Senate Proposal
The American Recovery and Reinvestment Act of 2009
Discussion
Issues Surrounding Fiscal Stimulus
The Magnitude of a Stimulus
Bang for the Buck
Timeliness
Long-Term Effects
Should Stimulus be Targeted?
Is Additional Fiscal Stimulus Needed?
Policies Previously Adopted
Interventions for Financial Firms and Markets
..1
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II
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16
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17
18
19
Tables
Table I. Zandi’s Estimates of the Multiplier Effect for Various Policy Proposals 14
Table 2. Timing of Past Recessions and Stimulus Legislation 15
Contacts
Author Contact Information 2.1
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Introduction
The National Bureau of Economic Research (NBER) has declared the U.S. economy to be in
recession since December of 2007. With the worsening performance of the economy,
congressional leaders and President Obama proposed much larger stimulus packages. The
American Recovery and Reinvestment Act of 2009 (ARRA), an $820 billion package with $275
billion in tax cuts (offset by a $7 billion gain from the treatment of built in losses) and the
remainder in spending, was passed by the House on January 28 (H.R. 1). It contained
infrastructure spending, revenue sharing with the states, middle class tax cuts, business tax cuts,
unemployment benefits, and food stamps. Similar legislation was passed in the Senate on
February 10 (a substitute for H.R. 1) and would cost S838 billion, with S292 billion in tax cuts.
The version of the bill signed into law on February 17, 2009 (P.L. 111-5), was a $787 billion
package with $286 billion in tax cuts and the remainder in spending.
Numerous actions have already been taken to contain damages spilling over from housing and
financial markets to the broader economy. These policies include traditional monetary and fiscal
policy, as well as federal interventions into the financial sector. In February 2008, in response to
weaker economic growth, an economic stimulus package of approximately .$150 billion was
adopted. 1 A provision that was considered (but not enacted) in the February stimulus bill was a
26-week extension of unemployment benefits; this extension was eventually enacted/
A number of financial interventions have also been undertaken, before and after financial market
conditions worsened significantly in September 2008. The Federal Reserve (Fed) has reduced
short-term interest rates to zero and introduced a number of facilities, providing direct assistance
to the financial system that would eventually surpass SI trillion. In October 2008, legislation
granting the Treasury Department authority to purchase up to $700 billion in assets through the
Troubled Assets Relief Program (TARP) was adopted.’ 1 On March 18, 2009, die Federal Reserve
announced plans to purchase more than SI trillion in assets, including $750 billion in mortgage-
backed securities and S300 billion in long-term Treasury debt. On March 23, 2009, the Treasury
announced a plan for a public-private partnership to purchase troubled assets, including one part
that uses the Federal Deposit Insurance Corporation (FD1C) to insure loans and another part that
would allow access to the Federal Reserve’s Term Asset-Backed Securities Loan Facility
(TALF). 4
1 A second stimulus plan (H.R. 71 10) passed the House on September 26, but was not passed by the Senate. It included
$36.9 billion on infrastructure ($12.8 billion highway and bridge. $7.5 billion water and sewer, $5 billion Corps of
Engineers); $6.5 billion in extended unemployment compensation; $14.5 billion in Medicaid; and $2.7 billion in food
stamp and nutrition programs.
2 For a discussion of the tax, housing, and unemployment legislation adopted in the 1 10* Congress, see CRS Report
RS22850. Tax Provisions of the 2008 Economic Stimulus Package , coordinated by Jane G. Gravelle; CRS Repoti
RS221 72, The Conforming Loan Limit , by N. Eric Weiss and Mark Jickling; and CRS Report RS22915, Temporary
Extension of Unemployment Benefits: Emergency Unemployment Compensation (ELI COS), by Julie M. Whittaker and
Alison M. Shelton.
y See CRS Report RL34427, Financial Turmoil : Federal Reserve Policy Responses , by Marc Labonte, for a discussion
of Federal Reserve Policy and CRS Report RL34730. Troubled Asset Relief Program: Legislation and Treasury
Implementation, by Baird Webel and Edward V. Murphy.
4 For further discussion see CRS Report RL34730, Troubled Asset Relief Program: Legislation and Treasury
Implementation, by Baird Webel and Edward V. Murphy.
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This report first discusses the current state of the economy, including measures that have already
been taken by the monetary authorities. The next section reviews the economic stimulus package.
The following section assesses the need for, magnitude of, design of, and potential consequences
of fiscal stimulus. The final section of the report discusses recent and proposed financial
interventions.
The Current State of the Economy 5
The need for fiscal stimulus depends, by definition, on the state of the economy. According to the
NBER. the official arbiter of the business cycle, the economy has been in recession since
December 2007, It defines a recession as a “significant decline in economic activity spread across
the economy, lasting more than a few months" based on a number of economic indicators, with an
emphasis on trends in employment and income/’
Economic growth rose by 2. 1 % in the fourth quarter of 2007 and then fell by 0.7% in the first
quarter of 2008; it increased by 1.5% in the second quarter of 2008. Real GDP decreased by 2.7%
in the third quarter of 2008 and by 5.4% in the fourth quarter. Estimates indicate that output fell
by 6.4% in the first quarter of 2009, the worst since 1982, and by 0.7% in the second quarter. The
latest consensus forecast predicts that GDP will contract until the second half of 2009, with
output falling by 2.6% for 2009 with the annual unemployment reaching a 9.2% in 2009 and
9.8% in 20 10. 7 This recession is the longest and deepest in the period since the Great Depression,
although it is still expected to end in 2009.
According to one data series, employment fell in every month of 2008. The deepening of the
downturn following September can also be seen in the movement of the unemployment rate. The
unemployment rate, which was 4.8% in February 2008. rose to 6. 1% in August and September,
and has steadily risen since, reaching 9.7% in June 2009; it declined slightly to 9.4% in July 2009
and rose to 9.8% in September 2009.
After a long and unprecedented housing boom, house prices fell 12% from peak to trough/ and
residential investment has fallen by more than half. This marked possibly the first year of falling
house prices since the Great Depression, according to one organization that compiles the data/
The decline in residential investment has acted as a drag on overall GDP growth, whereas the
other components of GDP grew at more healthy rales until the third quarter of 2008. Many
economists argued that the housing boom was not fully caused by improvements in economic
fundamentals (such as rising incomes and lower mortgage rates), and instead represented a
housing bubble — a situation where prices were being pushed up by “irrational exuberance.” 10
' This section was prepared by Marc Labonte of the Government and Finance Division.
h National Bureau of Economic Research, I'he NBER V Recession Dating Procedure . January 7. 2008.
7 Blue Chip, Economic Indicators, vol. 34, no. 9, September 10, 2009.
7 Based on the Federal Mousing Finance Administration’s Purchase-Only House Price index, a national measure of
single-family houses with conforming mortgages based on resale data.
’’ Michael Grynbaum, “Home Prices Sank in 2007, and Buyers Hid," New York Times. January 25, 2008. Prices are
compiled by the National Association of Realtors.
01 For more information, see CRS Report RL34244, Would a Housing Crash Cause a Recession?, by Marc Labonte.
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Most economists believed that a housing downturn alone would not be enough to singlehandedly
cause a recession, 1 ' But in August 2007, the housing downturn spilled over to widespread
financial turmoil. 1 ’ Triggered by a dramatic decline in the price of subprime mortgage-backed
securities and collateralized debt obligations, large losses and a decline in liquidity spread
throughout the financial system. Although the real production of goods and services showed
unexpected resilience until the fourth quarter of 2008, die ability of private borrowers to access
credit markets remained restricted throughout the year. Evidence of a credit crunch was seen in
the persistence of wide spreads between the interest rates that private borrowers paid for credit
and the yields on Treasury securities of comparable maturity.
The Fed was forced to create unusually large amounts of liquidity to keep short-term interest rates
from rising in August 2007, and has since reduced interest rates significantly. The Fed has
gradually reduced the federal funds target rate from 5.25% to a range of 0 to 0.25%, as of
December 16, 2008. In addition, the Fed has lent directly to financial institutions through an array
of new' facilities, and the amounts of loans outstanding has at times exceeded a trillion dollars. 1 ’ A
reduction in lending by financial institutions in response to uncertainty or financial losses is
another channel through which the economy entered a recession.
To date, financial markets remain volatile, new losses have been announced at major financial
institutions, and responses outside traditional monetary policy have been undertaken. Last March,
the financial firm Bear Stearns encountered liquidity problems, was purchased, after a plummet in
stock value, by JPMorgan Chase with financial assistance from the Fed. Then in July, the
government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac experienced rapidly
falling equity prices in response to concerns about the value of their mortgage-backed securities
assets. In July, Congress authorized Treasury to extend the GSEs an unlimited credit line (which
has not been utilized to date) in the Housing and Economic Recovery Act of 2008 (P.L. 110-289)
because of concern that the failure of a GSF. would cause a systemic financial crisis. The federal
government took control of Fannie Mae and Freddie Mac in early September.
According to news reports in the fall of 2008, government officials decided not to intervene on
behalf of Lehman Brothers and Merrill Lynch; 1 4 on September 14, Bank of America took over
Merrill Lynch without federal intervention, and on September 15, Lehman Brothers filed for
bankruptcy. The Treasury and Federal Reserve were trying to engineer a private bailout of the
nation's largest insurance company, AIG, but on September 16 seized control with an $85 billion
emergency loan, which would later be increased. 15
On September 1 8, Administration and Federal Reserve officials, with the bipartisan support of the
congressional leadership, announced a massive intervention in the financial markets. 16 The
1 1 See, for example, Frederic Mishkin, ‘'Housing and rhe Monetary Transmission Mechanism,” working paper
presented at the Federal Reserve Bank of Kansas City symposium, August 2007.
See CRS Report RL34! 82, Financial Crisis? The Liquidity Crunch of August 2007. by Darryl E. Getter el al.
1 See CRS Report RL34427, Financial Turmoil: Federal Reserve Policy Responses, by Marc Labonte.
14 David Cho and Neil Irwin. “No Bailout; Feds Made New Policy Clear in One Intense Weekend,” Washington Post,
September 16. 2008, pp. Al, A6-A7.
15 Glenn Kessler and David S. Hilzenrath, "AIG at Risk; $700 Billion in Shareholder Value Vanishes,” Washington
Post, September 1 6, 2008; US. Seizes Control of AIG With S85 Billion Emergency Loan. Washington Post,
September 1 7. 2008. pp. A! , A8.
16 See CRS Report RL34730, Troubled Asset Relief Program: Legislation and Treasury Implementation, by Baird
Webel and Edward V. Murphy.
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proposal asked for authority to purchase up to $700 billion in assets over the next two years. The
Treasury had also provided insurance for money market funds, where withdrawals have been
significant. These proposals suggested that government economists see problems with the
transmission of traditional monetary stimulus into the financial sector and ultimately into the
broader economy, where a significant contraction of credit could significantly reduce aggregate
demand. Although the legislation passed with some delay, the stock market fell significantly. The
original proposal had discussed buying mortgage related assets, particularly mortgage-backed
securities, but the Treasury indicated it will spend the initial $250 billion on preferred stock in
financial institutions. The Fed has also announced purchases of commercial paper, $200 billion of
asset-backed securities, and $600 billion of mortgage-related securities: the government has also
announced a plan to guarantee certain assets of Citigroup and Bank of America. On March 1 8. the
Fed announced plans to purchase more than $ 1 trillion in assets, including $750 billion in
mortgage-backed securities and S300 billion in long-term Treasury debt. On March 23, 2009, the
Treasury announced a plan for a public-private partnership to purchase troubled assets, including
one part that uses the Federal Deposit Insurance Corporation (FD1C) to insure loans and another
part that would allow access to the Federal Reserve’s Term Asset-Backed Securities Loan Facility
(TALK). 17
As the economy and financial sector had been grappling with the housing downturn, energy
prices had risen significantly, from $48 per barrel in January 2007 to S 1 1 5 dollars on April 30,
2008, and $ 1 44 as of July 2, 2008. After that, oil prices began a downward trend, and had fallen
below $70 by October and $60 by the end of November. The price reached $43 per barrel on
December 10, but has since increased to about S70 per barrel. Most recessions since World War
11, including the most recent, have been preceded by an increase in energy prices. 18 Energy prices
had gone up almost continuously in the current expansion, however, without causing a recession,
which may point to the relative decline in importance of energy consumption to production.
Although a housing downturn, financial turmoil, or an energy shock might not be enough to cause
a recession in isolation, the combination was sufficient.
The 2009 Stimulus Package 19
Preliminary Discussions
On December 15, House Speaker Peiosi suggested a $600 billion package with $400 billion of
spending and $200 billion in tax cuts as a starting point for discussion. It was reported that the
package would include infrastructure spending, aid to the states, unemployment compensation,
and food stamps. Earlier, on December 11, Finance Committee Chairman Baucus suggested that
half of an expected S700 billion plan might be in tax cuts; he mentioned child tax credits, state
and local property tax deductions, the R&D tax credit, the marriage penalty, tax exempt bonds
and energy incentives. House Republican Leader Boehner proposed a tax package that included
increases in the child tax credit, suspending the capital gains tax on newly acquired assets,
*' For further discussion, see CRS Report RL34730, Troubled Asset Relief Program: Legislation and Treasury
Implementation , by Baird Webel and Edward V. Murphy.
18 For more information, see CRS Report RL3 1608, The Effects of Oil Shocks on the Economy: A Review of the
Empirical Evidence , by Marc Labonte.
1 ' ) This section was prepared by Jane Gravelle and Thomas Hungerford, Government and Finance Division.
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increasing expensing, extending bonus depreciation and raising the share of costs expensed from
50% to 75%, extending net operating loss carrybacks to three years, lowering the corporate tax
rate from 35% to 25%, and expanding energy subsidies.
Reports on December 29 suggested that President-elect Obama would propose a package of $670
billion to $770 billion, but that additions in Congress might raise the total to $850 billion. The
package was reported to include $100 billion in aid to the states to fund Medicaid, possibly with
additional grants, and at least S350 billion for public works, alternative energy, health care and
school modernization, and expanding unemployment insurance and food stamp benefits. The
package would also include middle class tax cuts, possibly including changes to the child credit,
state and local property taxes, marriage penalties, the R&D tax credit and tax exempt bonds.
Following a meeting between President-elect Obama and congressional leaders on January 5,
news reports indicated that the share of the package directed at tax cuts would increase to about
40%, perhaps S300 billion. President-elect Obama suggested a credit for working families of up
to $ 1 ,000 for couples and $500 for singles. Business provisions that were discussed included
extensions of the bonus depreciation and small business expensing enacted in February 2008 that
expired at the end of 2008 as well as an extended net operating loss carryback provision that was
discussed but not enacted in 2008. Also discussed was an expansion of the first-time homebuyers
credit adopted in the 2008 housing legislation and expanding renewable energy incentives. A
payroll tax holiday was also discussed.
News reports on January 9 indicated some resistance of congressional lawmakers to two
provisions in President-elect Obama’s plan: a S3, 000 tax credit for employers who hire new
workers and the working families credit which provides for a credit of 6.2% of earnings up to a
ceiling of S500 for individuals and $1,000 for married couples. Some were concerned that the
employer tax credit would not benefit distressed firms and will be difficult to administer. There
were also concerns about the effects of a tax benefit of small magnitude having an effect if
reflected in withholding, although many economists suggest that a larger fraction of income
received in small increments is spent.
House Proposal
The House proposal of the American Recovery and Reinvestment Act (H.R. 1) was composed of
both spending and tax cuts. The spending proposals, which total $518.7 billion, include the
following:
• $54 billion for energy efficiency ($32 billion to improve the energy grid and
encourage renewable energy, $16 billion to repair and retrofit public housing; S6
billion to weatherize modest income homes);
• $ 1 6 billion for science and technology ($ 1 0 billion for research, $6 billion to
expand broadband access in rural and underserved areas);
• $90 billion for infrastructure ($30 billion for highways, $3 1 billion for public
infrastructure that leads to energy cost savings, $19 billion for clean water, flood
control and environmental infrastructure, $ 1 0 billion for transit and rail);
• S 141.6 billion for education ($41 billion to local school districts dedicated to
specific purposes, $79 billion to prevent cutbacks in state and local services
including $39 billion to local school districts and public colleges and universities
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distributed through existing formulas, S 1 5 billion to states for meeting
performance measures, $25 billion to states for other needs, $15.6 billion to
increase the Pell grant by $500, $6 billion for higher education modernization);
• $24. 1 billion for health ($20 billion in health information technology and $4. 1
billion for preventive care);
• $ 1 02 billion for transfer payments ($43 billion for unemployment benefits and
job transit benefits, $39 billion to cover health care for unemployed workers, $20
billion for food stamps); and
• $9 1 billion to the States ($87 billion in general revenues by temporarily
increasing the Medicaid matching rate and $4 billion for law enforcement).
The proposal also contained $275 billion in tax cuts, which was reduced by a small revenue gain
from limits on built-in losses. The tax elements included the following:
• Temporary income tax cuts for individuals included the Making Work Pay tax
credit — a 6.2% credit for earnings with a maximum of $500 for singles and
$1,000 for couples, phased out for taxpayers with incomes over $75,000
($150,000 for joint returns) — with a SI 45.3 billion 10-year cost, $4.7 billion for a
temporary increase in the earned income credit, $ 1 8.3 billion to make the child
credit fully refundable, SI 3.7 billion to expand higher education tax credits and
make them 40% refundable (the refundability feature accounts for $3.5 billion).
• Tax provisions for business, which would have lost revenue in FY2009-FY2010
and gain revenue thereafter, included $37.8 billion for extending bonus
depreciation, S59. 1 billion for a temporary five year loss carryback for 2008 and
2009 (except for recipients of TARP funds; and electing firms would reduce
losses by 10%), and S 1.1 billion for extending small business expensing.
• A series of provisions related to tax exempt bonds aimed at aiding state and local
governments, which would have cost S 1 .3 billion for FY2009-FY2010, but $37.3
billion from FY2009-FY2019. Almost half the revenue loss would have arisen
from allowing taxable bond options which to make bonds attractive to tax exempt
investors. Other major provisions measured by dollar cost were qualified school
construction bonds, recovery zone bonds, and provisions to allow financial
institutes more freedom to buy tax exempt bonds.
• A permanent provision would have repealed the 3% withholding for government
contractors, which would not have lost revenue until 201 1 and would have cost
$ 10.9 billion for FY2009-FY2019.
• Energy provisions, some permanent and some temporary, would have totaled
$5.4 billion in FY2009-FY201 1 and $20.0 billion in FY2009-FY20 1 9. There was
also a provision substituting grants for credits for certain energy projects which
would have shifted benefits to the present.
• The proposal also included a provision to eliminate the requirement for paying
back credit for first-time homebuyers unless they sell their homes within three
years (S2.5 billion for 2009-2019). There was also a substitution of grants for the
low income housing credit, which would have shifted benefits to the current year
($3 billion).
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• A minor provision (S208 million for FY2009-2019) would have provided
incentives for hiring unemployed veterans and disconnected youth.
• Repeal (prospectively) a Treasury ruling made in 2008 that allowed financial
institutions to carry over losses in an acquisition (gains $7 billion for FY2009-
FY2010).
The bill passed the House on January 28, with an additional of S3. 7 billion, primarily for transit
funds, bringing the total cost to $820 billion.
Senate Proposal
The Senate passed a bill (a substitute for H.R. I ) with $838 billion in spending and tax cuts. The
higher cost was primarily due to the addition of the Alternative Minimum Tax (AMT) “patch”
(see below).
The tax provisions were similar to the House tax bill in many respects. The bill, however, did not
fully refund the child credit and made 30% of tuition credits refundable, but allowed an exclusion
of up to $2,400 of unemployment benefits. The Senate bill also included a SI 5,000
homeownership tax credit at a 1 ()-year cost of $35 billion and an above-the-deduction for certain
costs of a new automobile purchase (SI 1 billion 10-year cost). It would not have required net
operating losses to be reduced, as in the House bill. It added provisions for businesses including
an election to accelerate alternative minimum tax and research and experimentation credits in lieu
of bonus depreciation, a deferral of tax on income from cancellation of indebtedness, an increase
in the exclusion for small business stock. It also altered the size and mix of tax exempt bond
provisions, with the total cost of S22.6 billion, and changed some energy provisions. The bill also
included a $300 per adult payment to individuals eligible for Social Security, Railroad
Retirement, Veterans benefits, and Supplemental Security Income, at a cost of S17 billion, and
provided a one year increase in the ATM “patch” exemption, at a cost of $70 billion. Overall, the
tax cuts were $368.4 billion. The measure also included $87 billion in Medicaid funding for the
states, $20 billion to provide health insurance for unemployed workers, and $16 billion to provide
for health information technology.
The details of the spending provisions amounted to S290 billion in discretionary spending and
S260 billion in direct spending," 0 One category of provisions would have provided $116 billion
for infrastructure and science, including $5.9 billion for the Department of Homeland Security
and border stations, $7 billion for broadband technology, provisions in infrastructure and science
for a variety of federal programs (e.g., $4.6 billion for the corps of engineers, $9.3 billion for
defense and veterans), $27 billion for highways, S8.4 billion for mass transit, $10.9 billion for
grants and other transportation, $8.6 billion for public housing, $15 billion for environmental
programs, and $4.3 billion for science. The bill wmuld have provided $84 billion for education
and training, with the majority, $79 billion, in grants to states and localities, and also included $13
billion in Title 1. and $3.9 billion in Pell grants. Energy programs accounted for S43 billion; $23
billion would have been provided for nutrition, early childhood, and similar programs; and $14
billion for health. The Senate bill also contained a limit on executive compensation at firms
receiving assistance from TARP.
The direct spending also includes SS3.7 billion in the refundable portion of tax credits.
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The American Recovery and Reinvestment Act of 2009
The American Recovery and Reinvestment Act of 2009 (P.L. 111-5) was signed by President
Obama on February 17, 2009. The version of the act signed into law has several provisions
similar to the House and Senate proposals. The total 10-year cost, at $787 billion, is lower than
both versions initially passed by the House and Senate, however. The spending parts of the act
account for 63,7% of the total cost ($501 .6 billion) and the tax provisions account for 36.3%
($285.6 billion). The act includes the S70 billion AMT “patch" and an executive compensation
limitation for TARP recipients.
Many of the tax and spending provisions of the act were scaled down from the House and Senate
proposals. The Making Work Pay tax credit was scaled back to $ 1 1 6.2 billion between FY2009
and FY201 1 and provides a tax credit of up to $400 for a single taxpayer and S800 of joint
taxpayers. The temporary increase in the earned income credit is projected to cost $4.7 billion
over 10 years and the child tax credit is projected to cost $14.8 billion. The act also includes a
$8,000 first-time homebuyer credit with a 10-year cost of S6. 6 billion, an above-the-line
deduction for sales tax on a new automotive purchase (S 1 .7 billion), a $2,400 exclusion of
unemployment compensation benefits ($4.7 billion), and a $250 payment to recipients of Social
Security. SSI, Railroad Retirement benefits, and certain veterans benefits ($14.2 billion). 21
The business tax provisions are projected to lose $75.9 billion in revenues for FY2009 and
FY20 1 0, but gain revenue in the future; the total 1 0-year revenue loss is projected to be $6.2
billion. Other business tax provisions include an extension of bonus depreciation ($5.1 billion
revenue loss), a five-year carryback of net operating losses for small businesses ($0.9 billion),
delayed recognition of certain cancellation of debt income ($1.6 billion), an increase in the small
business capital gains exclusion from 50% to 75% (S0.8 billion), and incentives to hire
unemployed veterans and disconnected youth (SO. 2 billion).
The energy tax provisions amount to $20 billion over 10 years and $3.4 billion for FY2009-
FY20 1 1 . The major energy provision is a long-term extension and modification of renewable
energy production tax credits ($13.1 billion over 10 years). The act alters the size and mix of tax-
exempt bond provisions with a total 10-year cost of S25 billion.
The discretionary appropriations provisions of the act provide S3 1 1 billion in appropriations
between FY2009 and FY2019. Investments in infrastructure and science account for $120 billion
and education and training programs are to receive $106 billion. Health programs are set to
receive $14.2 billion, the Supplemental Nutrition Assistance Program (formerly food stamps) will
receive $20 billion, Head Start $2. 1 billion, and $2 billion for the child care development block
grant. Almost $40 billion will be used for investments in energy infrastructure and programs.
Increases for direct spending programs include $57.3 billion for assistance to unemployed
workers and struggling families, $25.1 billion for health insurance assistance, $20.8 billion for
health information technology, and $90.0 billion for state fiscal relief.
“ There is also a $250 tax credit for federal and state pensioners not eligible for Social Security with a $218 million 10-
year cost.
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Discussion
Fiscal stimulus is only effective when the policy options increase aggregate demand. Many
economists view fiscal policy as less effective than monetary policy in an open economy. As
mentioned earlier in this report, however, several monetary policy options have already been
employed for several months.
Fiscal stimulus can involve tax cuts, spending, or a combination of both. Tax cuts may be less
effective than spending because some of the tax cut may be saved, which diminishes the
effectiveness of the stimulus. Some argue that tax cuts that are temporary, that appear in a lump
sum rather than in withholding, or that are aimed at higher income individuals are more likely to
be saved. Some evidence suggests that two-thirds of the 2001 tax rebate was spent within two
quarters.
The challenge to spending programs is that there may be a lag time for planning and
administration before the money is spent. For that reason, infrastructure spending is often
discussed in the context of “ready-to-go” projects where all of the planning is in place and the
only missing factor is funding. The U.S. Conference of Mayors has identified S73 billion of these
projects and urged some funds to be given directly to localities; the American Association of State
Highway and Transportation Officials has identified $64 billion of these projects; the National
Association of Counties has identified $9.9 billion. Some analysts suggest that aid to state and
local governments may be more quickly spent because these governments are likely to cut back
on spending in downturns due to balanced budget requirements, and the aid may forestall these
cuts. 12 The Congressional Budget Office (CBO) score for the spending (discretionary and direct)
portion of the act estimates that about 21% will be spent in FY2009, and 38% in FY2010. 1 '
Overall, about 74% of the spending and tax provisions are estimated to reach the public by the
end of FY2010. However, if the AMT “patch” is omitted then about 70% is estimated to reach the
public by the end of FY20 10.
The receipt of tax cuts can also be delayed. 24 For example, according to Joint Committee on
Taxation estimates of the Making Work Pay credit revenue losses, 17% of the total would be
received in FY2009. 35 The benefit is provided in the form of withholding; since the measure was
not in place on January 1, some benefit would be delayed until tax returns are filed. Close to 50%
would be received in FY2009 if a rebate mechanism were used (based on estimates of a similar
provision considered in 2008 at about the same time of the year, 93% of the rebate was projected
to be received in the current fiscal year). There is some limited evidence that periodic payments
are more likely to be spent than lump sum payments, but that evidence is subject to uncertainty
and is not of a magnitude that the withholding approach would result in a larger short run
stimulus than a rebate." 6 In the second year, 57% would be received.
22 See CRS Report R401 07, The Role of Public Works Infrastructure in Economic Stimulus., coordinated by Claudia
Copeland, and CRS Report 92-939, Countercyclical Job Creation Programs . by Linda Levine.
2i CBO, Letter to the Honorable Nancy Pelosi, Estimated Budget Impact of the Conference Agreement for H.R. L
February 13, 2009.
24 The progress of spending is tracked at http://www.recovery.gov/.
2r 'http:/7 vvww. house, gov/jet/x- 1 9-09.pdf.
2t> This issue does not address the difference between temporary and permanent tax cuts; economists expect the latter to
have more effect on consumption, but a permanent tax cut would result in budget pressures after recovery. Alan S.
Blinder, "Temporary Income Taxes and Consumer Spending*' The Journal of Political Economy , Vol. 89, February
(continued...)
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Several studies have estimated the effects of the proposed package on the economy. Romer and
EJernstein estimate an increase of 3.7 million jobs by the fourth quarter of 2010; Zandi estimates
3.3 million in 20 10. 2 ' The Romer-Bemstein estimates were criticized by Cogan et al. as being too
large. 2 * 5 Citing uncertainty surrounding the effects of fiscal stimulus, CBO projects that the ARRA
would boost GDP in 2009 by a range of 1.4% to 3.8% and employment by a range of 0.8 million
to 2.3 million compared with what it otherwise would have been. In 201 0, CBO projects that the
ARRAwou Id boost GDP by 1.1% to 3.3% and employment by 1.2 million to 3.6 million in 2010
compared with what it otherwise would have been. Starting in 2014, CBO projects that the ARRA
would cause GDP to be slightly lower than it otherwise would have been due to “crowding out”
effects described in the section titled “Long-Term Effects.” The Council of Economic Advisors
(CEA) is charged with providing a quarterly report on the effects of the legislation; that report
estimates that the stimulus increased GDP growth by 2-3 percentage points in the second and
third quarters and increased employment by 600,000 to 1.1 million jobs in the third quarter. 29
(...continued)
1981, pp. 26-53, found the rebate 38% as effective as a permanent change and a withholding approach 50%, suggesting
that the rebate would be 75% as effective as withholding. James M. Poterba, “Are Consumers Forward Looking?”
American Economic Review , Vol. 78. (May 1 988), pp. 413-418 found only 20% spent. Many economivSts have
reservations about estimates using aggregate data, however, because of the difficulties of determining the
counterfactual. For that reason, many researchers turned to comparisons of households with different amounts of tax
cuts. Two studies of spending out of refunds (lump sum receipts) and spending out of withholding in the first Reagan
tax cut found that 35% to 60% of refunds were spent but 60% to 90% of the withholding was spent (See Nicholas
Souleles, “The Response of Household Consumption to Income Tax Refunds,” American Economic Review , vol. 89
(September 1 999), pp. 947-958; and Nicholas Souleles, “Consumer Response to the Reagan Tax Cuts,” Journal of
Public Economics. Vol. 85, pp. 99-120.). This research suggests a significant fraction of a temporary tax cut is spent,
but that the lump sum has an effect that is about two thirds of the effect of withholding. This comparison is, however,
somewhat clouded by the possibility that individuals may use tax refunds as a method of forced savings and not intend
to spend them. In both cases, however, there is evidence of an effect for temporary tax cuts. Research on the 2001
rebate also indicates a significant amount was spent: David S. Johnson. Jonathan A. Parker, and Nicholas S. Souleles,
Household Expenditures and the Income Tax Rebate of 2001 American Economic Review , Vol. 96, December 2006,
pp. 1589-1610 find over two thirds spent within two quarters. For other research see CRS Report RS21 126, Tax Cuts
and Economic Stimulus: How Effective Are the Alternatives ?, by Jane G. Gravelle. Not included in that discussion are
survey data asking individuals about their spending, as individuals themselves may not know what they spent. A
preliminary study of the 2008 rebate also found significant spending: Christian Broda and Jonathan Parker, “The
Impact of the 2008 Tax Rebates on Consumer Spending: Preliminary Evidence,” Mimeo, University of Chicago and
Northwestern University, July 29,2008: http://online. wsj.com/public/resources/docurnents/VVS.l-
2008 Sti mul usS tudy.pdf.
Christina Romer and Jared Bernstein, “The Job impact of the American Recovery and Reinvestment Plan, Chair,
Nominee Designate Council of Economic Advisors and Office of the Vice President Elect, January 9, 2009,
http://otrans.3cdn. net/45593e8ecbd339d074_13m6btlte.pdf; Mark Zandi, “The Economic Impact of the American
Recovery and Reinvestment Act,” January 21, 2009, http://www.economy.com/mark-zandi/documents/
Economic_Stimulu.sHouse_PJan_01 2 109.pdf.
28 John Cogan ct al ,, New Keynesian vs. Old Keynesian Government Spending Multipliers . National Bureau of
Economic Research, Working Paper 4782, March 2009.
29 Council of Economic Advisors, The Economic Impact of the American Recovery and Reinvestment Act of 2009,
September ! 0, 2009, http://www.whitehouse.gov7assets/documents/CEA_ARR A_Repoii_Final.pdf.
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Issues Surrounding Fiscal Stimulus 30
The Magnitude of a Stimulus
The most important determinant of a stimulus’ macroeconomic effect is its size. The 2008
stimulus package (P.L. 110-185) increased the budget deficit by about 1% of gross domestic
product (GDP). In a healthy year, GDP grows about 3%. In the moderate recessions that the
United States experienced in 1990-1991 and 2001, GDP contracted in some quarters by 0.5% to
3%. (The U.S. economy has not experienced contraction in a full calendar year since 1991.) Thus,
a swing from expansion to recession would result in a change in GDP growth equal to at least 3.5
percentage points, A stimulus package of 1% of GDP could be expected to increase total spending
by about 1%. 31 To the extent that spending begets new spending, there could be a multiplier effect
that makes the total increase in spending larger than the increase in the deficit. Offsetting the
multiplier effect, the increase in spending could be neutralized if it results in crowding out of
investment spending, a larger trade deficit, or higher inflation. The extent to which the increase in
spending would be offset by these three factors depends on how quickly the economy is growing
at the time of the stimulus — an increase in the budget deficit would lead to less of an increase in
spending if the economy were growing faster.
Thus, if the recession is mild, additional stimulus may not be necessary for the economy to
revive. If, on the other hand, the economy has entered a deeper, prolonged recession, as some
economists believe to be likely, then fiscal stimulus may not be powerful enough to avoid it.
Since the current recession has already lasted longer than the historical average, it may end before
further fiscal stimulus can be enacted. Economic forecasts are notoriously inaccurate due to the
highly complex and changing nature of the economy, so there is significant uncertainty as to how
deep the downturn will be, and how much fiscal stimulus would be an appropriate response.
The American Recovery and Reinvestment Act of 2009 will increase the budget deficit by about
1 .3% in 2009 and an additional 2.2% (or 3.5% overall) in 2010. Some believe that circumstances
warrant a larger stimulus — GDP in FY2009 is expected to contract by more than size of the
stimulus in 2009, Others have expressed reservations that the deficit is already too large and, at
least with respect to spending, it would be difficult to spend such large amounts without financing
wasteful projects. Although the act authorizes $379 billion of spending in 2009, CBO estimates a
outlays of only SI 20 billion because it does not project that executive agencies can spend the total
amount authorized in this fiscal year.
Bang for the Buck
In terms of first-order effects, any stimulus proposal that is deficit financed would increase total
spending in the economy.” For second-order effects, different proposals could get modestly more
'‘bang for the buck" than others if they result in more total spending. If the goal of stimulus is to
30 This section was prepared by Marc Labonte. Government and Finance Division.
>! See, for example, "Options for Responding to Short-term Economic Weakness,” Testimony of CBO Director Peter
Orszag before the Committee on Finance, January 22, 2008.
• 2 There may be a few proposals that would not increase spending. For example, increasing tax incentives to save
would probably not increase spending significantly. These examples are arguably exceptions that prove the rule.
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maximize the boost to total spending while minimizing the increase in the budget deficit (in order
to minimize the deleterious effects of “crowding out”), then maximum bang for the buck would
be desirable. The primary way to achieve the most bang for the buck is by choosing policies that
result in spending, not saving. 33 Direct government spending on goods and services would
therefore lead to the most bang for the buck since none of it would be saved. The largest
categories of direct federal spending are national defense, health, infrastructure, public order and
safety, and natural resources. 34
Higher government transfer payments, such as extended unemployment compensation benefits or
increased food stamps, or tax cuts could theoretically be spent or saved by their recipients. ’ 5
Although there is no way to be certain bow to target a stimulus package toward recipients who
would spend it, many economists have reasoned that higher income recipients would save more
than lower income recipients because U.S. saving is highly correlated with income. For example,
two-thirds of families in the bottom 20% of the income distribution did not save at all in 2004,
whereas only one-fifth of families in the top 10% of the income distribution did not save. 36
Presumably, recipients in economic distress, such as those receiving unemployment benefits,
would be even more likely to spend a transfer or tax cut than a typical family.
The effectiveness of tax cuts also depends on their nature. As discussed above, tax cuts received
by lower income individuals are more likely to be spent. Some economists have also argued that
temporary individual tax cuts, such as the 2001 and 2008 rebates, are more likely to be saved;
however, evidence on the 2001 tax rebate suggests most was eventually spent, and debate
continues on the effect of the 2008 rebate. Most evidence does not suggest that business tax cuts
would provide significant short-term stimulus. Investment incentives arc attractive, if they work,
because increasing invest ment does not trade off short term stimulus benefits for a reduction in
capital formation, as do provisions stimulating consumption. Nevertheless, most evidence does
not suggest these provisions work very well to induce short-term spending. This lack of
effectiveness may occur because of planning lags or because stimulus is generally provided
during economic slowdowns when excess capacity may already exist. Of business tax provisions,
investment subsidies are more effective than rate cuts, but there is little evidence to support much
stimulus effect. Temporary bonus depreciation is likely to be most effective in stimulating
investment, more effective than a much costlier permanent investment incentive because it
encourages the speed-up of investment. Although there is some dispute, most evidence on bonus
depreciation enacted in 2002 nevertheless suggests that it had little effect in stimulating
investment and that even if the effects were pronounced, the benefit was too small to have an
appreciable effect on the economy. The likelihood of the remaining provisions having much of an
incentive effect is even smaller. Firms may, for example, benefit from the small business
expensing, but it actually discourages investment in the (expanded) phase out range. ” Net
” Policies that result in more bang for the buck also result in more crowding out of investment spending, which could
reduce die long-term size of the economy (unless the policy change increases public investment or induces private
investment).
” For the purpose of this discussion, government transfer payments, such as entitlement benefits, are not classified as
government spending.
35 Food stamps cannot be directly saved since they can only be used on qualifying purchases, but a recipient could
theoretically keep their overall consumption constant by increasing their other saving.
f ' Brian Bucks et al„ ’‘Recent Changes in U.S. Family Finances: Evidence from the 2001 and 2004 Survey of
Consumer Finances,” Federal Reserve Bulletin, vol. 92, February 2006, pp. A1-A38.
37 For more information, sec CRS Report RS21 1 36, Government Spending or Tax Reduction: Which Might Add More
Stimulus to the Economy ?, by Marc Labonte; CRS Report RS2 1 1 26, Tax Cuts and Economic Stimulus : How Effective
(continued...)
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operating losses carrybacks do not increase incentives to spend, but do target cash to troubled
businesses.
Mark Zandi of Moody’s Ecortomy.com has estimated multiplier effects for several different policy
options, as shown in Table l.' 18 The multiplier estimates the increase in total spending ill the
economy that would result from a dollar spent on a given policy option. Zandi does not explain
how these multipliers were estimated, other than to say that they were calculated using his firm’s
macroeconomic model. Therefore, it is difficult to offer a thorough analysis of the estimates. In
general, many of the assumptions that would be needed to calculate these estimates are widely
disputed (notably, the difference in marginal propensity to consume among different recipients
and the size of multipliers in general), and no macroeconomic model has a highly successful track
record predicting economic activity. Thus, the range of values that other economists would assign
to these estimates is probably large. Qualitatively, most economists would likely agree with the
general thrust of his estimates, however — spending provisions have higher multipliers because
tax cuts are partially saved, and some types of tax cuts are more likely to be saved by their
recipients than others. As discussed above, a noticeable increase in consumption spending has not
yet accompanied the receipt of the rebates from the first stimulus package. (Note, however, that
these effects do not account for the possibility of extensive delay in direct spending taking place.)
The CBO rankings of multipliers are similar to Zatidi’s. 3 ’ For government purchases and transfers
to state and local governments for infrastructure, their multipliers are 1.0 in the low scenario and
2.5 in the high. For transfers to state and local governments not for infrastructure, the multipliers
are 0.7 and 1 .9, CBO sets the multipliers for transfers at 0.8 to 2.2, for temporary individual tax
cuts at 0.5 to 1 .7, and the tax loss carryback at 0 to 0.4. As with Zandi, these effects do not
incorporate differentia ls in the rate of spending, however. In particular, they note that
infrastructure spending will likely be delayed, while transfers would occur very quickly. Unlike
Zandi, CBO emphasizes the broad uncertainty inherent in estimating multipliers.
(...continued)
Are the Alternatives?, by Jane G. Gravelle; CRS Report RL31 134, Using Business Tax Cuts to Stimulate the Economy.
coordinated by Jane G. Gravelle; and CRS Report RS22790. Tax Cuts for Short-Run Economic Stimulus: Recent
Experiences , coordinated by Jane G. Gravelle. Also see Fiscal Policy for the Crisis, IMF Stall Position Note,
December 29, 2008, SPN/08/01 http7/www.imf.org/extema!/np/pp/eng(2008/122308.pdf.
Mark Zandi, “Washington Throws the Economy a Rope. ' Dismal Scientist , Moody's Economy.com, January 22,
2008.
19 Congressional Budget Office, "The State of the Economy and Issues in Developing an Effective Policy Response,”
Testimony of Douglas W. Elmendorf, Director, House Budget Committee, January 27, 2009.
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Table I.Zandi’s Estimates of the Multiplier Effect for Various Policy Proposals
Policy Proposal
One-year change in real GDP for a
given policy change per dollar
Tax Provisions
Non-refundable rebate
1.02
Refundable rebate
1.26
Payroll tax holiday
1.29
Across the board tax cut
1.03
Accelerated depreciation
0.27
Extend alternative minimum tax patch
0.48
Make income tax cuts expiring in 2010 permanent
0.29
Make expiring dividend and capital gains tax cuts permanent
0.37
Reduce corporate tax rates
0.30
Spending Provisions
Extend unemployment compensation benefits
1.64
Temporary increase in food stamps
1.73
Revenue transfers to state governments
1.36
Increase infrastructure spending
1.59
Source: Mark Zandi, Moody's Economy.com.
Timeliness
Timeliness is another criterion by which different stimulus proposals have been evaluated. There
are lags before a policy change affects spending. As a result, stimulus could be delivered after the
economy has already entered a recession or a recession has already ended. First, there is a
legislative process lag that applies to all policy proposals — a stimulus package cannot take effect
until bills are passed by the House and Senate, both chambers can reconcile differences between
their bills, and the President signs the bill. Many bills get delayed at some step in this process. As
seen in Table 2, many past stimulus bills have not become law until a recession was already
underway or finished. 40
1 The International Monetary Fund recently analyzed the “timeliness, temporariness, and targeting’’ of US. tax cuts
from 1970 to 2008 in International Monetary Fund, World Economic Oullook, Washington. DC, October 2008. p. 172.
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Table 2. Timing of Past Recessions and Stimulus Legislation
Beginning of Recession
End of Recession
Stimulus Legislation Enacted
November 1 948
October 1949
October 1 949
August !9S7
April 1958
April 1958, July 1958
April I960
February 1961
May 1961, September 1962
December 1969
November 1970
Aug, 1971
November 1973
March 1975
March 1975, July 1976, May 1977
July 1981
November 1982
January 1983, March 1983
July 1990
March 1991
December 1991, April 1993
March 200 1
November 200 1
June 2001
Source: Bruce Bartlett, "Maybe Too Little, Always Too Late," New York Times. January 23, 2008.
Second, there is an administrative delay between the enactment of legislation and the
implementation of the policy change. For example, although the 200S stimulus package was
signed into law in February, the first rebate checks were not sent out until the end of April, and
the last rebate checks were not sent out until July. When the emergency unemployment
compensation (EUC.08) program began in July 2008, there was about a three week lag between
enactment and the first payments of the new EUC08 benefit. Many economists have argued that
new government spending on infrastructure could not be implemented quickly enough to
stimulate the economy in time since infrastructure projects require significant planning. (Others
have argued that this problem has been exaggerated because existing plans or routine
maintenance could be implemented more quickly.) Others have argued that although federal
spending cannot be implemented quickly enough, fiscal transfers to state and local governments
would be spent quickly because many states currently face budgetary shortfalls, and fiscal
transfers would allow them to avoid cutting spending. 41 ARRA granted $379 billion of budget
authority in 2009, but CBO projects that only S120 billion will be outlayed in 2Q09. 4J
Finally, there is a behavioral lag because time elapses before recipient of a transfer or tax cut
increases its spending. For example, the initial reaction to the receipt of rebate checks was a large
spike in the personal saving rate (see above). It is unclear how to target recipients that would
spend most quickly, although presumably liquidity-constrained households (i.e., those with
limited access to credit) would spend more quickly than others. In this regard, the advantage to
direct government spending is that there is no analogous lag. Although monetary policy changes
have no legislative or administrative lags, research suggests they do face longer behavioral lags
than fiscal policy changes because households and business generally respond more slowly to
interest rate changes than tax or transfer changes.
■" Transfers to state and local governments could be less stimulative than direct federal spending because state and local
governments could, in theory, increase their total spending by less than the amount of the transfer. (For example, some
of the money that would have been spent in the absence of the transfer could now be diverted to the state’s budget
reserves.) But if states are facing budgetary shortfalls, many would argue that in practice spending w ould increase by as
much as the transfer.
Congressional Budget Office. Cost Estimate for the Conference Agreement for H.R. 1 . Letter to Honorable Nancy
Pelosi. February 1 3, 2009.
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Long-Term Effects
A main factor in another round of fiscal stimulus may be the size of the current budget deficit.
The 2009 stimulus package is relatively large, and CBO projects the deficit will already exceed
$1 trillion in 2009. Deficits of this magnitude would set a peacetime record relative to GDP.
Although current government borrowing rates are extremely low (because of the financial
turmoil), there is a fear that a deficit of this size could become burdensome to service when
interest rates return to normal. A larger deficit could eventually crowd out private investment, act
as a drag on economic growth, and increase reliance on foreign borrowing (which would result in
a larger trade deficit). By doing so, the deficit places a burden on future generations, and could
further complicate the task of coping with long-term budgetary pressures caused by the aging of
the population. 43 In the highly unlikely, worst case scenario, if too much pressure is placed on the
deficit through competing policy priorities, then investors could lose faith in the government’s
ability to service the debt, and borrowing rates could spike.
Many of these issues could be minimized if the elements of the stimulus package are temporary—
an increase in the budget deficit for one year would lead to significantly less crowding out over
time than a permanent increase in the deficit. There is often pressure later to extend policies
beyond their original expiration date, however. Among policy options, increases in public
investment spending w'ould minimize any negative effects on long-run GDP because decreases in
the private capital stock would be offset by additions to the public capital stock. Also, tax
incentives to increase business investment would offset the crowding out effect since the increase
in aggregate spending was occurring via business investment.
The direct effect of the American Recovery and Reinvestment Act on the budget deficit is
relatively small after 2011, although it leads to a permanent increase in interest payments on the
national debt if not offset by future policy changes.
Should Stimulus be Targeted?
It is clear that the slowdown has been concentrated in housing and financial markets to date.
Some economists have argued that as long as problems remain in these depressed sectors, then
generalized stimulus will only postpone the inevitable downturn. For example, as long as
financial intermediation remains impaired, access to credit markets will be limited and it will be
difficult for stimulus to lead to sustained growth. (As noted above, separate legislation to support
housing and financial markets was enacted in 2008.) If so, fiscal stimulus may, at most, provide a
temporary boost as long as those problems are outstanding, but cannot singlehandedly shift the
economy to a sustainable path of expansion. For example, the first stimulus package, enacted in
the first quarter of 2008, did not prevent the economy from deteriorating further in the third
quarter of 2008. Other economists argue that if the current housing bust is being caused by the
unwinding of a bubble, then the government could be unable to reverse unavoidable market
adjustment that is bringing those markets back to equilibrium. But some w'ould argue that the best
way to help a troubled sector is by boosting overall demand.
’ See CRS Report RL32747, The Economic Implications of the Long-Term Federal Budget Outlook , by Marc Labonte.
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Is Additional Fiscal Stimulus Needed?
The economy naturally experiences a boom and bust pattern called the business cycle. A
recession can be characterized as a situation where total spending in the economy ( aggregate
demand) is too low to match the economy’s potential output ( aggregate supply). As a result, some
of the economy’s labor and capital resources lay idle, causing unemployment and a low capacity
utilization rate, respectively. Recessions generally are short-term in nature — eventually, markets
adjust and bring spending and output back in line, even in the absence of policy intervention. 44
Policymakers may prefer to use stimulative policy to attempt to hasten that adjustment process, in
order to avoid the detrimental effects of cyclical unemployment. By definition, a stimulus
proposal can be judged by its effectiveness at boosting total spending in the economy. Total
spending includes personal consumption, business investment in plant and equipment, residential
investment, net exports (exports less imports), and government spending. Effective stimulus
could boost spending in any of these categories.
Fiscal stimulus can take the form of higher government spending (direct spending or transfer
payments) or tax reductions, but generally it can boost spending only through a larger budget
deficit, as is the case with ARRA. A deficit-financed increase in government spending directly
boosts spending by borrowing to finance higher government spending or transfer payments to
households. A deficit-financed tax cut indirectly boosts spending if the recipient uses the tax cut
to increase his spending. If an increase in spending or a tax cut is financed through a decrease in
other spending or increase in other taxes, the economy would not be stimulated since the deficit-
increasing and deficit-decreasing provisions would cancel each other out.
How much additional spending can stimulate economic activity depends on the state of the
economy at that time. When the economy is in a recession, fiscal stimulus could mitigate the
decline in GDP growth by bringing idle labor and capital resources back into use. When the
economy is already robust, a boost in spending could be largely inflationary- since there would
be no idle resources to bring back into production when spending is boosted, the boost would
instead bid up the prices of those resources, eventually causing all prices to rise. The recession
appears to have deepened in the fourth quarter of 2008. By historical standards, the recession
would be expected to end before fiscal stimulus could be delivered, but forecasters are predicting
this recession will be longer than usual. Most of the stimulus provided by ARRA will be delivered
by 20 11 , and CBO is projecting that there will still be a significant output gap at that point.
Because total spending can be boosted only temporarily, stimulus has no long-term benefits, and
may have long-term costs. Most notably, the increase in the budget deficit “crowds out’’ private
investment spending because both must be financed out of the same finite pool of national saving,
with the greater demand for saving pushing up interest rates. 4 ' To the extent that private
investment is crowded out by a larger deficit, it would reduce the future size of the economy since
the economy would operate with a smaller capital stock in the long run. In recent years, the U.S.
economy has become highly dependent on foreign capital to finance business investment and
14 For more information, see CHS Report RL34072, Economic Growth and the Business Cycle: Characteristics,
Causes, and Policy’ Implications, by Marc Labonte.
45 Crowding out is likely to be less of a concern when the economy is in recession since recessions are typically
characterized by falling business investment.
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budget deficits. 46 Because foreign capital can come to the United States on ly in the form of a
trade deficit, a higher budget deficit could result in a higher trade deficit, in which case the higher
trade deficit could dissipate the boost in spending as consumers purchase imported goods. Indeed,
conventional economic theory predicts that fiscal policy has no stimulative effect in an economy
with perfectly mobile capital flows. 4/ Some economists argue that these costs outweigh the
benefits of fiscal stimulus.
Policies Previously Adopted
Stimulus has also been delivered from other fiscal changes and monetary policy. First, the federal
budget has automatic stabilizers that cause the budget deficit to automatically increase (and
thereby stimulate the economy) during a downturn in the absence of policy changes. When the
economy slows, entitlement spending on programs such as unemployment compensation benefits
automatically increases as program participation rates rise and the growth in tax revenues
automatically declines as the recession causes the growth in taxable income to decline.
Second, any consideration for additional stimulus has to include the effects of stimulus previously
enacted. According to CBO, the total deficit in FY200S was $455 billion, or 3.2% of gross
domestic product, sharply higher than the FY2007 deficit of S162 billion. In January 2008, CBO
had projected that under current policy the budget deficit would increase by $56 billion in 2008
compared with 2007. When the cost of the February 2008 stimulus package and part of the cost of
financial market intervention in the fall of 2008 is added, the increase in the deficit for one year
rose by nearly $300 billion. CBO projects the deficit will increase further in 2009. to $1.2 trillion
or 8.3% of GDP, in the absence of additional stimulus. These increases in the deficit would also
be expected to have a stimulative effect on aggregate spending.
Third, the Federal Reserve has already delivered a large monetary stimulus. By the end of April
2008, the Fed had reduced overnight interest rates to 2% from 5.25% in September 2007. 48 On
December 16, the interest rate was lowered to a targeted range of 0% to 0.25%. Typically, lower
interest rates stimulate the economy by increasing the demand for interest-sensitive spending,
which includes investment spending, residential housing, and consumer durables such as
automobiles. Yet. the potential for stimulus caused by lower interest rates can be limited if tight
credit markets constrain borrowing, lit addition, lower interest rates can stimulate the economy by
reducing the value of the dollar, all else equal, which would lead to higher exports and lower
.49
imports.
It could be viewed that the Federal Reserve has chosen a monetary policy that it believes will best
achieve a recovery given the actions already taken. If it has chosen that policy correctly, an
argument can be made that an additional fiscal stimulus is unnecessary since the economy is
already receiving the correct boost in spending through lower interest rates and through the first
l! If' foreign borrowing prevents crowding out, the future size of the economy will not decrease but capital income will
accrue to foreigners instead of Americans.
4 For more information, see CRS Report RS2I409, The Budget Deficit and the Trade Deficit: What Is Their
Relationship ?, by Marc Labonte and Gail K. Makinen.
4S For interest rate changes see CRS Report 98-856, Federal Reserve Interest Rate Changes: 2001-2009 , by Marc
Labonte.
For more infonnation, see CRS Report RL30354, Monetary Policy and the Federal Reserve : Current Policy and
Conditions , by Marc Labonte.
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stimulus package. In this light, additional fiscal stimulus would be useful only if monetary policy
is unable to adequately boost spending —either because the Fed has chosen an incorrect policy or
because the Fed cannot boost spending enough through lower interest rates and direct assistance
to the financial sector to spark a recovery, and direct intervention in financial markets is not
adequate. 50 (Now that interest rates have fallen to zero, the Fed can no longer reduce rates to
stimulate the economy, but it can increase — and has increased — its direct assistance to the
financial sector.)
Interventions for Financial Firms and Markets
A number of direct interventions in the economy occurred in 2008 that could be seen as a type of
stimulus, iti part because of credit problems. One indication of restricted credit despite stimulative
Federal Reserve monetary policy was the failure of mortgage rates to fall significantly. Instead,
the spread between Treasury and GSE bonds remained elevated over the summer. The newly
created Federal Housing Finance Agency (FHFA) cited the persistence of this wide spread as a
major factor in its decision to place the GSEs in conservatorship in September. During the week
of September 1 5- 1 9, financial markets were further disturbed by the bankruptcy of investment
bank Lehman Brothers and Federal Reserve intervention on behalf of the insurer AIG These
actions eroded market confidence further, resulting in a sudden spike of the commercial paper
rate spread from just under 90 basis points to 280 basis points, a spike that in times past might
have been called a panic. If financial market confidence is not restored and private market spreads
remain elevated, the broader economy could slow more due to difficulties in financing consumer
durables, business investment, college education, and other big-ticket items.
In September 2008, Administration and Federal Reserve officials with the bipartisan support of
the congressional leadership, announced a massive intervention in the financial markets,
requesting authority to purchase up to $700 billion in assets over the next two years. The Treasury
had also provided insurance for money market funds, where withdrawals have been significant.
Congressional leaders and other Members raised a number of issues and made some additional
proposals, which included setting up an oversight mechanism, restrictions on executive
compensation of firms from which assets are purchased, acquiring equity stakes in the
participating firms, and allowing judges to reduce mortgage debt in bankruptcies (not included in
the final act).
Later, in October 2008, legislation (P.L. 1 10-343) was enacted to allow an initial S250 billion of
financing with an additional S 100 billion upon certification of need, with Congress allowed 30
days to object to the final S350 billion. The plan has oversight by an Inspector General, audit by
the Government Accountability Office, setting standards of appropriate compensation, and
providing for equity positions in all participating companies. The final package also added an
expansion of deposit insurance coverage. There remained, however, concerns about how to price
acquired assets in a way that balances protection of taxpayers with providing adequate assistance
to firms. The Treasury had indicated use of a reverse auction mechanism to purchase mortgage
50 Fed Chairman Ben Bernanke may have hinted at the latter ease when he testified that “fiscal action could be helpful
in principle, as fiscal and monetary stimulus together may provide broader support for the economy than monetary
policy actions alone." Quoted in Ben Bernanke, “The fc'eonomic Outlook,’* testimony before the House Committee on
the Budget, January i 7. 2008.
Congressional Research Service
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Economic Stimulus: Issues ami Policies
backed securities, where companies will bid to sell their assets, ft is not clear how well such an
auction would work with heterogeneous assets. 51
The Treasury subsequently announced that it would use the first S250 billion authorized to
purchase preferred stock in financial institutions and has now indicated it will use subsequent
funds for capital injections, consumer credit (such as auto loans, student loans, small business
loans, and credit cards) and mortgage assistance. 32 Congressional leaders urged Treasury to
provide $25 billion in aid to U.S. auto manufacturers. 33 On November 10, a restructuring of
government assistance to AIG was announced which increased the amount at risk from $143.7
billion to S 1 73.4 billion, extended the loan length and reduced the interest rate. The Fed also
announced on October 14 that it would begin purchasing commercial paper. 54 News reports
indicated the FD1C had a plan, supported by many congressional Democrats, to offer financial
incentives to companies that agree to reduce monthly mortgage payments, but that this plan was
opposed by the Bush Administration. 55 On November 23, the government announced a plan to
assist Citicorp, and on November 25 the Fed revealed plans to purchase $200 billion in asset-
backed securities through the Term Asset-Backed Securities Loan Facility (TALF); these
securities are based on auto, credit card, student and small business loans.
Much of the intervention up to this point had been in the financial markets. However, the Detroit
automakers (GM, Ford, and Chrysler) asked for S34 billion in loans to forestall bankruptcy. After
Congress did not adopt an emergency loan of S14 billion in a special post-election session in
December 2008, the Administration announced, on December 19, that it would provide $17.4
billion from TARP: $9.4 billion to GM and S4 million to Chrysler. An additional $4 billion would
be made available for G.M if the remaining $350 billion in TARP funds is approved. On
December 30. $6 billion in TARP funds were provided for GM AC, the auto financing company.
The Fed has also announced purchases of commercial paper, $200 billion of asset backed
securities, and $600 billion of mortgage-related securities; the government has also announced a
plan to guarantee certain assets of Citigroup and Bank of America. On March 1 8, the Fed
announced plans to purchase more than $1 trillion in assets, including $750 billion in mortgage
backed securities and $300 billion in long-term Treasury debt. On March 23, 2009, the Treasury
announced a plan for a public-private partnership to purchase troubled assets, including one part
that uses the FDIC to insure loans and another part that would allow access to the Federal
Reserve’s TALF. 56
Legislation has been introduced (H.R. 384) by the chairman of the Financial Services Committee
to regulate the spending of the final $350 billion, but many of the provisions could also be
achieved through an agreement between Congress and the Administration. There is interest in
directing some of the funds to directly aid mortgage holders to avoid foreclosure and small
51 See CRS Report RL34707, Auction Basics: Background for Assessing Proposed Treasury Purchases of Mortgage-
Backed Securities, by D. Andrew Austin.
52 Testimony of Interim Assistant Secretary for Financial Stability Neel Kashkari before the House Committee on
Oversight and Government Reform, Subcommittee on Domestic Policy, November 14, 2008.
David M. Herszenhiom, "Chances Dwindle on Bailout Plan for Automakers,” New York Times , November 14, p. At.
54 Federal Reserve Board Press Release, October 14, 2008.
55 Buinyamin Appelbaum, FDIC Details Plan to Alter Mortgages, Washington Post, November 14, 2008, p. AL
56 For fiirther discussion, see CRS Report RL34730, Troubled Asset Relief Program: Legislation and Treasury >
Implementation, by Baird Webel and Edward V. Murphy.
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Economic Stimulus: Issues and Policies
business loans, as well as considering oversight issues. Congress could have enacted legislation to
disallow the release. However, on January 1 5, the Senate defeated a proposal to block the
spending of the additional funds.
Among the issues of concern with financial interventions is whether an ad hoc, case-by-case
intervention is likely to be a successful strategy. A case-by-case strategy can create uncertainty
and also moral hazard (causing firms to undertake too much risk if they expect to be rescued).
The creation of TARP represents a shift to a more broad-based approach. The approach of a
broad-based intervention could take the form of the purchase of troubled assets (as originally
proposed or through a “bad bank") or the injection of capital (such as the Treasury’s decision to
purchase preferred stock)! 7
Author Contact Information
Jane G. Gravel le
Senior Specialist in Economic Policy
jgravclie@crs.loc.gov, 7-7829
Thomas L. Hungerford
Specialist in Public Finance
th unger for d@crs. loc.gov. 7-6422
Marc Labonte
Specialist in Macroeconomic Policy
mlabonte@crs. loc.gov. 7-0640
57 These issues are discussed in more detail in CRS Report RL34730, Troubled Asset Relief Program: Legislation and
Treasury Implementation, by Baird Webel and Edward V. Murphy.
Congressional Resea rch Service
21
140
Senator Boxer. Thank you.
We are going to ask our witnesses to please take their seats right
now. Our witnesses, in this order of speaking, unless Secretary
Salazar is going to work with his colleagues, this is what I have.
Hon. Steven Chu, Hon. Ray LaHood, Hon. Ken Salazar, Hon. Lisa
Jackson, Hon. Jon Wellinghoff. That is the array that we have.
Senator Voinovich.
Senator Voinovich. I just would like to have the article that I
referred to in the New York Times put in the record after my state-
ment, along with the analysis of the job loss by the American
Council for Capital Formation.
Senator Boxer. Absolutely, and we will also place in the record
a number of studies cited by Senator Kerry that shows the oppo-
site, so everybody sees it.
While you are all getting ready, we were asked about Secretary
Vilsack. I explained that he is traveling. But for that he would
have been here. And I am going to place, ask unanimous consent
now to place his statement in the record. I am going to quote from
two sentences. He says “The cost of inaction will have a significant
effect on our farmers, ranchers and rural communities. While farm-
ers and ranchers and forest land owners have a lot at stake if we
fail to act, they have much to gain if we address climate change
quickly and wisely. And there are significant opportunities for
landowners in a cap-and-trade program that can help revitalize
rural America.” And it talks about wealth creation.
[The referenced statement follows:]
Statement of
Thomas J. Vilsack
Secretary of Agriculture
Before the
Committee on Environment and Public Works
United States Senate
October 27, 2009
Madame Chairwoman, Ranking Member Inhofe, and members of the Committee, I
apologize for not being able to be with you today. Unfortunately, 1 am out of the country
but I appreciate the opportunity to submit testimony today on the critical role of and
potential impact on agriculture and forestry in climate change legislation.
The United States, along with the rest of the world, is facing a crisis. Climate change is a
serious threat to our economy and national security. This legislation is an important
opportunity for the US to show international leadership on climate change. I want to
commend Senators Kerry and Boxer for the introduction of their legislation, which
provides an important first step towards the passage of comprehensive energy and climate
legislation in the Senate. The USDA looks forward to continuing to work with the Senate
on this monumental challenge.
Farmers, ranchers, and forest landowners are at the crux of the climate change debate.
The U.S. Climate Change Science Program and Subcommittee on Global Climate
Change Research reported that forest landowners are already seeing the impacts of
climate change on the health and productivity of our forests. Drought, catastrophic
weather events, and disease outbreaks are just some of the potential effects of a warming
climate. In addition, there continues to be a growing concern that crop yields will suffer
due to changing weather patterns. Clearly, the cost of inaction will have a significant
effect on our farmers, ranchers, and rural communities.
While farmers, ranchers and forest landowners have a lot at stake if we fail to act, they
also have much to gain if we address climate change quickly and wisely. 1 believe there
are significant opportunities for landowners in a cap and trade program that can help
revitalize rural America. Rural America has an unprecedented potential for economic
development and job growth through new energy technologies. The anaerobic digesters
and wind will provide landowners with new sources of revenue and wealth creation.
A robust carbon offsets market will provide farmers, ranchers and forest landowners with
the potential for new sources of income. Rural communities may have new opportunities
for growth and competiveness as we enter a new 21 st century economy. To be effective,
the market will require an infrastructure of people and agencies that can encourage
landowner participation, provide information to landowners, manage data and resources.
142
and maintain records and registries. I believe that USDA, EPA, DOI, DOE, and other
Federal agencies can meet this need. We must also ensure that agricultural and forest
offsets provide real, additional, and verifiable greenhouse gas reductions. This is critical
not only to addressing climate change but to maintaining public confidence in the carbon
offset program, as well.
However, we understand the concerns of many in the agricultural and forestry
community about the potential costs of climate change legislation. I know many of you
are hearing the same concerns from the farmers, ranchers and forest landowners in your
states.
In order to address these concerns, USDA has analyzed costs and benefits of the House-
passed climate legislation for agriculture. While there are differences between the
Waxman-Markey legislation and the Kerry-Boxer bill, it is our expectation that the
impact in agriculture will be similar. Our preliminary analysis demonstrates that
economic opportunities for farmers and ranchers can outpace - perhaps significantly —
the costs from climate legislation.
Let’s first look at the cost side. Agriculture is an energy intensive sector with row crop
production particularly affected by energy price increases. For example, fertilizer and
fuel costs account for 50 to 60 percent of variable costs of production for com. While
most of the direct energy price increases would be felt immediately by the agricultural
sector, fertilizer costs would likely be unaffected until 2025 due to provisions in HR 2454
that would distribute specific quantities of emissions allowances to “energy- intensive,
trade exposed entities” (EITE). In absence of the EITE provisions, higher fertilizer prices
could lead to an average annual increase in crop production expenses of $1 .4 billion in
real 2005 dollars over 2012-18.
Increases in fuel prices are expected to raise overall annual average farm expenses by
about $700 million between 2012 and 2018, or about 0.3%. Annual net farm income as a
result of these higher energy prices is expected to fall by about 1 percent. These
estimates are conservative, for example they assume that in the short term farmers are
unable to make changes in input mix in response to higher fuel prices — so they likely
overestimate the costs to farmers. Over longer time frames, the estimated impacts of HR
2454 are modest and suggest a decline of annual net farm income of $2.4 billion, or
3.5%, in 2030 and $4.9 billion, or 7.2%, in 2048. These estimates are likely an upper
bound on the costs, because they fail to account for farmers’ proven ability to innovate in
response to changes in market conditions.
The medium to long term analyses are conservative given the observation that energy use
per unit of output has declined significantly over the past several decades. Because of
this, our estimates are likely an upper bound estimate on the costs because they fail to
account for farmers’ ability to fully respond to changes in market conditions. Our
analysis is also conservative because it doesn’t account for revenues to farmers from
biomass production for bioenergy. A number of studies have examined the effects of
2
143
higher energy costs with models that allow for expected changes in production
management practices and switching to bioenergy crops. 1 ' 1 Based on the analysis of
Schneider and McCarl. for example, allowing for changes in input mix and revenues
from biomass production - but without accounting for income from offsets it is
estimated that annual net farm income would increase in 2030 by about $0.6 billion or
less than 1 percent. By 2045, annual net farm income is estimated to increase by more
than $2 billion or 2.9%.
The creation of an offset market will create new opportunities for the agricultural sector.
In particular, our analysis indicates that annual returns to farmers and ranchers range
from about $1 billion per year in 2015-20 to almost $15-20 billion in 2040-50, not
accounting for the costs of implementing offset practices. In the short term, the economic
benefits to agriculture from cap-and-trade legislation will likely outweigh the costs. In the
long term, the economic benefits from offsets markets easily trump increased input costs
from cap-and-trade legislation. Let me also note that we believe these figures are
conservative because we aren't able to model the types of technological change that are
very likely to help farmers produce more crops and livestock with fewer inputs. Second,
the analysis doesn’t take into account the higher commodity prices that farmers will very
likely receive as a result of enhanced renewable energy markets and retirement of
environmentally sensitive lands domestically and abroad. Of course, any economic
analysis such as ours has limitations. But, again, we believe our analysis is conservative -
it’s quite possible farmers will actually do better. None of this analysis includes the
potential benefit arising from new energy jobs that will come from constructing,
operating, and maintaining new infrastructure for renewable energy.
We recognize that climate legislation will affect different landowners in different ways.
USDA can help smooth this transition by using our Farm Bill conservation and
renewable energy programs to assist landowners in adopting new technologies and
stewardship practices.
1 want to thank the Committee for its interest and involvement on climate change. The
leadership you provide will help farmers, ranchers and forest landowners participate in
and benefit from climate legislation. The participation of rural landowners is, I believe,
vitally important to the success of any cap and trade program. USDA looks forward to
working with you as we move forward in building a stronger rural America.
3
144
Senator Boxer. So we are going to place this, and we are proud
to have Secretary Vilsack’s support for a good climate change bill.
We are honored to have this array of experts with us from the
Administration, and we thank you for your patience. Sometimes I
know it seems interminable, but I think it is also important for you
to hear from each of us, so you know exactly the issues that we are
all dealing with.
So is there any change in the order? Or we can stick with it? OK.
The Honorable Steven Chu, Secretary, United States Department
of Energy. Welcome.
STATEMENT OF HON. STEVEN CHU, SECRETARY,
U.S. DEPARTMENT OF ENERGY
Mr. Chu. Thank you, Chairman Boxer, Ranking Member Inhofe,
members of the committee. Thank you for the opportunity to testify
today.
When I appeared before you in July, I focused on the energy
challenge and the grave threat from climate change. The Intergov-
ernmental Panel on Climate Change found in 2007 that the best
estimate for the rise in the average global temperature by the end
of this century would be more than 7 degrees Fahrenheit if we con-
tinued on a high growth fossil fuel intensive course.
A 2009 MIT study found a 50 percent chance of a 9 degree rise
in the century and a 17 percent chance of a nearly 11 degree in-
crease. Eleven degrees might not sound like much, but during the
last Ice Age, when Canada and much of the United States were
covered all year in a glacier, the world was only about 11 degrees
colder. A world 11 degrees warmer would be very different as well.
Today I want to focus on the other half of the energy equation,
the energy opportunity. The world now realizes that its current
level of greenhouse gas emissions is unsustainable. In the coming
years, there will be a vigorous effort to limit carbon pollution that
will require a massive deployment of clean energy technologies.
The only question is, which countries will invent, manufacture and
export these clean technologies, and which countries will become
dependent on foreign products?
The Energy Information Administration, an independent statis-
tical agency within the Department of Energy, recently estimated
the market for a few clean energy technologies. It based its anal-
ysis on a scenario derived by the International Energy Agency that
could prevent the worst changes to our climate. The EIA found
globally the cumulative investment in wind turbines and solar pho-
tovoltaic panels from now to 2030 could be $2.1 trillion and $1.5
trillion respectively. The policy decisions we make today will deter-
mine the U.S. share of this market. And many additional dollars,
jobs and opportunities are at stake in other clean energy econo-
mies.
China has already made its choice. China is spending about $9
billion a month on clean energy. It is also investing $44 billion by
2012 and $88 billion by 2020 in ultra-high voltage transmission
lines. These lines will allow China to transmit power from huge
wind and solar farms far in the western part of China to its cities
on the eastern coast.
145
While every country’s transmission needs are different, this is a
clear sign of China’s commitment to developing renewable energy.
The United States, meanwhile, has fallen behind. The world’s
largest turbine manufacturing company is headquartered in Den-
mark. Ninety-nine percent of the batteries that power America’s
hybrid cars are made in Japan. We manufactured more than 40
percent of the world’s solar cells as recently as the mid-1990s.
Today we produce only 7 percent.
When the gun sounded on the clean energy race, the United
States stumbled. But I remain confident that we can make up
ground. When we gear up our research and production of clean en-
ergy technologies, we can still surpass any other country.
This work began in earnest with the American Recovery and Re-
investment Act. That Act includes $80 billion to put tens of thou-
sands of Americans to work, developing new battery technologies
for hybrid vehicles, making our homes and businesses more energy
efficient, doubling our capacity to generate renewable electricity,
and modernizing the grid.
In fact, today, President Obama will announce an investment of
more than $3.4 billion in smart grid projects across the country.
This is a major down payment on a more robust, more flexible elec-
tricity transmission and distribution system.
However, to truly seize the opportunity, we must enact com-
prehensive energy and climate legislation. I commend Chairman
Boxer and Senator Kerry for bringing forward this legislation. The
most important element of this bill is that it puts a cap on carbon
emissions that ratchets down over time. That critical step will
drive investment decisions for clean energy.
Imagine, for example, you own a power company and are consid-
ering building more generating capacity. You can build a new coal-
fired plant or a new nuclear plant. These are serious, multi-billion
dollar investments, and they will last 60 years. If you knew that
carbon emissions had to decrease, would you build a coal plant
without carbon capture and storage technology? Would a nuclear
power plant look more attractive? Would you consider investing in
wind and solar?
On-again and off-again incentives will not drive the level of clean
energy investment we need. A cap on carbon will give the energy
industry the long-term direction and certainty that it needs to
make appropriate technology and capital investment decisions.
To achieve our long-term goals in a cost effective way, we will
also need a sustained commitment to research and development.
Only R&D will deliver a new generation of clean technologies.
Much of this work is underway at the Department of Energy using
resources provided in the Recovery Act. However, continued invest-
ment will be needed.
S. 1733 would continue portions of this work, and the legislation
reported by Chairman Bingaman’s committee would also bolster
these efforts. I applaud you for holding this hearing and look for-
ward to working with this committee and the full Senate to swiftly
pass comprehensive clean energy and climate legislation. Thank
you.
[The prepared statement of Mr. Chu follows:]
146
Statement of
Steven Chu
Secretary of Energy
Before the
Committee on Environment and Public Works
United States Senate
Washington, D.C.
October 27, 2009
Chairman Boxer, Ranking Member Inhofe, Members of the Committee, thank
you for the opportunity to testify today.
When I appeared before you in July, I focused on the energy challenge and the
grave threat from climate change. The Intergovernmental Panel on Climate Change
found in 2007 that the best estimate for the rise in average global temperature by the end
of this century would be more than 7 degrees Fahrenheit if we continued on a high
growth, fossil fuel intensive course. A 2009 MIT study found a fifty percent chance of a
9 degree rise in this century and a 1 7 percent chance of a nearly 1 1 degree increase.
Eleven degrees may not sound like much, but, during the last ice age, when Canada and
much of the United States were covered all year in a glacier, the world was only about 1 1
degrees colder. A world 1 1 degrees warmer will be very different as well.
Today, I want to focus on the other half of the energy equation: the energy
opportunity.
The world now realizes that its current level of greenhouse gas emissions is
unsustainable. In the coming years, there will be a vigorous effort to limit carbon
pollution that will require a massive deployment of clean energy technologies. The only
question is - which countries will invent, manufacture, and export these clean
technologies and which countries will become dependent on foreign products?
The Energy Information Administration - an independent statistical agency
within the Department of Energy - recently estimated the market for a few key clean
technologies. It based its analysis on a scenario derived by the International Energy
Agency that could prevent the worst changes to our climate.
EIA found that, globally, the cumulative investment in wind turbines and solar
photovoltaic panels from now through 2030 could be $2.1 trillion and $1.5 trillion,
respectively. The policy decisions we make today will determine the U.S. share of this
market. And many additional dollars, jobs and opportunities are at stake in other clean
technologies.
1
147
China has already made its choice. China is spending about $9 billion a month on
clean energy. It is also investing $44 billion by 2012 and $88 billion by 2020 in Ultra
High Voltage transmission lines. These lines will allow China to transmit power from
huge wind and solar farms far from its cities. While every country’s transmission needs
are different, this is a clear sign of China’s commitment to developing renewable energy.
The United States, meanwhile, has fallen behind. The world’s largest turbine
manufacturing company is headquartered in Denmark. 99 percent of the batteries that
power America’s hybrid cars are made in Japan. We manufactured more than 40 percent
of the world’s solar cells as recently as the mid 1990s; today, we produce just 7 percent.
When the starting gun sounded on the clean energy race, the United States
stumbled. But I remain confident that we can make up the ground. When we gear up our
research and production of clean energy technologies, we can still surpass any other
country.
This work began in earnest with the American Recovery and Reinvestment Act.
The Recovery Act includes $80 billion to put tens of thousands of Americans to work
developing new battery technologies for hybrid vehicles, making our homes and
businesses more energy efficient, doubling our capacity to generate renewable electricity,
and modernizing the electric grid. In fact, today, President Obama will announce an
investment of more than $3.4 billion in smart grid projects across the country. This is a
major down payment on a more robust, more flexible electricity transmission and
distribution system.
However, to truly seize this opportunity, we must enact comprehensive energy
and climate legislation. I commend Chairmen Boxer and Kerry for bringing forward this
legislation.
The most important element of this bill is that it puts a cap on carbon emissions
that ratchets down over time. That critical step will drive investment decisions toward
clean energy.
Imagine, for example, that you own a power company and are considering
building more generating capacity. Building a new coal-fired power plant or a new
nuclear plant is a serious, multi-billion dollar investment. And these investments could
last at least 60 years. If you knew that carbon emissions had to decrease, would you
build a coal plant without carbon capture and storage technology? Would the nuclear
plant look more attractive? Would you consider investing in wind and solar?
On-again, off-again incentives will not drive the level of clean energy investment
we need. A cap on carbon will give the energy industry the long-term direction and the
certainty it needs to make appropriate technology and capital investment decisions.
2
148
To achieve our long-term goals in a cost-effective way, we will also need a
sustained commitment to research and development. Only R & D can deliver a new
generation of clean technologies.
Much of this work is underway at the Department of Energy using the resources
provided in the Recovery Act. However, continued investment will be needed. S. 1733
would continue portions of this work, and the legislation reported by Chairman
Bingaman’s committee would also bolster these efforts.
I applaud you for holding this hearing and look forward to working with this
committee and the full Senate to swiftly pass comprehensive clean energy and climate
change legislation. Thank you.
3
149
Environment and Public Works Committee Hearing
October 27, 2009
Follow-Up Questions for Written Submission
Questions for Chu
Questions from:
Senator Frank R. Lautenberg
1. I have worked with Chairman Boxer and other members of the Committee
to increase the amount of funding for researching and developing the next
generation of clean energy technology, which will fundamentally shift the
way we use energy, while creating jobs and stimulating the economy. Can the
U.S. successfully transition to a clean energy economy-and create the jobs
that come along with it-if we fail to provide a significant investment in
research and development by our most promising scientists and engineers?
We have many low-carbon technologies available to us today, and we should put in place
stable policies including comprehensive energy and climate legislation to deploy them
and thereby reduce our carbon emissions.
Much of the current R&D activities underway at the Department of Energy using
the resources provided in the Recovery Act work toward a successful transition.
However, continued investment will be needed.
150
Senator James M. Inhofe
1. Do you agree that the worker adjustment assistance provisions in Title 3,
Part 2, sections 311 through 313 in Kerry-Boxer are needed because this bill
will cost jobs?
No. As 1 stated in my testimony, 1 believe that passing legislation that sets long-term
carbon targets will send a signal to American industry that will result in innovation and
new jobs. However, there will be some shifts in employment among various sectors
during the transition to a low-carbon economy, and the provision you refer to is intended
to address this.
2. 1 understand new legislation usually entails new programs. But Sen. Webb
compared the bureaucracy in Lieberman-Warner to "the old Soviet Union.
Lieberman-Warner was 344 pages. Kerry-Boxer is 923 pages. Waxman-
Markey is 1,400 pages. How would you describe the bureaucracy and
mandates in this bill? And if this a market-based approach, why is all of this
necessary?
As I stated in my testimony, I believe the most important element of this bill is that it puts
a cap on carbon emissions that ratchets down overtime. That critical step will drive
investment decisions toward clean energy. I do not have a view as to what is the
appropriate number of pages for comprehensive clean energy and climate change
legislation, but I am ready to work with you and other members of this committee and the
Senate to craft a bill that moves us to a low-carbon, clean energy economy in the most
efficient and effective way.
3. Traditionally, DOE has focused its efforts on supporting RD&D related to
development and early demonstrations of advanced unproven energy
technologies. But in today's economic and financial markets there is a
substantial gap, often called the "valley of death", in moving from
development and demonstration to first-of-a-kind commercial-scale
deployment of clean energy and CCS technologies. Would you agree that we
face a "valley of death" problem with CCS technology deployment? If so,
how can it be addressed?
Through the Recovery Act and other measures, DOE is currently investing more than $4
billion in CCS projects. This investment is being leveraged by contributions from the
private sector that reach almost $7 billion, indicative of the role DOE plays in mitigating
the risks associated with early deployment of new technologies and helping to minimize
the time required to deploy. In addition, advanced technology for Enhanced Oil Recovery
using C02 injection, which is included in some Recovery Act projects, can stimulate
development of the CCS transportation infrastructure that will facilitate CCS deployment.
There are a number of mechanisms that could be used to build on this work, some of
which are included in the Kerry-Boxer bill.
151
4. Given the recognized importance of avoiding "carbon leakage" for energy-
intensive trade-exposed industries and the early deployment opportunities
for industrial with CCS, shouldn't industrial projects be included in the first
tranche of CeS deployment bonus allowances under the K,;,B (first 10 GW
tranche now allocated solely to utilities)?
DOE is investing more $4 billion in CCS, which will be matched by up to almost $7
billion more from U.S. industry. Of the $4 billion, approximately $1.3 billion of this
amount will support an additional five to seven industrial scale demonstration projects
retrofitting existing industrial facilities with innovative new carbon capture technologies.
5. With, and without, a unilateral "carbon price signal," how do you envision
the timeline and scope of CCS commercial deployment, industrials and
power?
I believe we must make it our goal to advance carbon capture and storage technology to
the point where widespread, affordable deployment can begin in 8 to 10 years. 1 am
convinced that this timeline can be achieved, but it will require sustained investment.
DOE is investing more than $4 billion in CCS, which will be matched by up to almost $7
billion more from U.S. industry. I am also encouraged by the commitments other
countries have made, and the international partnerships that are forming to drive this
technology forward.
6. What other commercialization program elements need to be in place? Given
current limitations in private capital formation or mobilization, how can
DOE successfully manage CCS technology to assure near-term commercial
deployment?
As noted above, I believe that the most important element of this bill is that it puts a cap
on carbon emissions that ratchets down over time. That critical step will drive
investment decisions towards clean energy, including CCS technology. DOE’S applied
R&D will also help to increase efficiency and reduce costs of CCS technologies.
7. Is there urgency to better "rationalize" the full array of CCS technology
RDD&D? How could this leverage the potential for deployment acceleration
and the cost savings opportunities of non-utility industrials?
As noted above, through the Recovery Act and other measures, DOE is currently
investing more than $4 billion in CCS projects. These funds and programs will support
research and development across a range of CCS applications. Secretary Chu has
recently stated the goal of having CCS technology to the point widespread, affordable
deployment can begin in 8 to 10 years.
8. I read the proposal out of the Vice President's office that your department
uses Recovery Act funding for a home energy labeling program that is still
pending in legislation before Congress. Last I checked it's up to Congress to
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authorize programs and administrative agencies to implement them. Do you
think that's wise to move forward with the home energy labeling program
before Congress has had a chance to finish discussing it?
DOE has existing authorities to support the program you refer to, though DOE of course
stands ready to work with Congress on pending legislation.
9. Your own inspector general concluded in a recent audit, reported by the
New York Times, that the Department is failing to properly track whether
manufacturers that give their appliances an Energy Star label have met the
required specifications for energy efficiency. Now you're proposing to energy
star label every home in America. If you are not able to offer the American
public confidence in the energy efficiency of a simple household appliance,
how are you going to do that when it comes to existing homes, where there
are so many more variables to account for?
DOE is taking aggressive action to address the findings of the 1G audit. DOE is pursuing
the home labeling program you refer to because home energy use and bills can be
substantial, and we believe that American consumers will reap substantial benefits from
having access to robust, reliable information about home energy performance. DOE is
also increasing its focus on enforcement in this area and has recently announced the
creation of an enforcement team in the office of the general counsel.
10. The "Recovery Through Retrofit" Report, released by the Office of the Vice
President on October 19, 2009, proposes creation of an "Energy Performance
Label and Measure" for existing homes. Please describe:
a) the specific statutory authorities and exactly how funding under the Recovery Act
(Public Law 111-5) will be used to develop and implement this proposal. And will
use of these home energy labels and measures become a condition for state
governments to receive funding for any state energy program, energy efficiency and
conservation block grants or any other energy efficiency/conservation program?
This proposal will be implemented pursuant to the Energy Conservation Standards for
New Buildings Act of 1976, the Department of Energy Organization Act of 1977, and the
Energy Policy and Conservation Act of 1975, as amended. Funding under the Recovery
Act will be used only in accordance with the provisions thereof. Funding for the State
Energy Program and the Energy Efficiency and Conservation Block Grant Program will
be provided consistent with the statutory and regulatory provisions governing those
programs.
b) the opportunities that will be provided for stakeholders and the general public to
provide their input on the impacts this proposal could have on the current housing
market; and
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Building labels will be created pursuant to the normal labeling process, which includes a
substantial opportunity for public comment and participation.
c) the process and procedures by which the DOE, EPA or both will assure that an
home’s energy label accurately characterizes and adequately captures the
variability in the designed and achieved performance of existing homes and that
existing homes that receive an Energy Star label under the Administration's
proposal will in fact, meet the specifications of that label.
DOE is developing testing protocols that will validate the labels by benchmarking them
against the homes' actual electric and gas consumption. We intend to continue this
sampling process indefinitely as we continuously improve the software and methodology
for creating the label. Labels will only be generated by individuals certified to do so
using methods approved by DOE and EPA. We expect that the label ratings will be based
on an appropriate computer simulation of the building's energy use. The labels will
advise the consumer that actual energy use will vary depending on how the building is
operated.
11. Section 163 would require the EPA Administrator, or other agency head or
heads designated by the President, to promulgate regulations establishing
building code energy efficiency targets by January 1, 2014. Which agency is
best equipped to establish national energy efficiency building targets, the
DOE or the EPA?
DOE and EPA work closely on a range of energy efficiency programs. Traditionally,
DOE has taken the lead on building codes; in addition, DOE is the lead for building
efficiency standards under a recently signed EPA-DOE Memorandum of Understanding.
12. Under current law, the DOE is charged with making determinations on
national model energy codes and participates in the development of those
codes. Does Section 163 conflict with the DOE’s current responsibilities?
Section 163 appears to create a binding, national energy code. Such a code does not exist
under current law.
13. When will loan guarantees for new nuclear plants be issued?
As 1 stated at the hearing, DOE is working hard to finalize and make conditional awards.
1 remain hopeful that the first conditional awards will be made in the coming months.
14. In the 2009 Omnibus Appropriations Act, Congress directed DOE to provide
a report describing the development of the credit risk subsidy model and the
economic assumptions used for the energy markets and technologies under
consideration to receive loan guarantees. When will you submit that report?
We will provide you a copy of the report, which was recently submitted to Congress.
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15. If Yucca Mountain is not an option, when do you anticipate ceasing
payments from the Nuclear Waste Fund to the State of Nevada?
This is an issue that will be addressed in future year budgets, and I am unable to provide
information about such budgets at this time.
16. Since the Administration currently has no plan for the disposal of nuclear
waste and spent nuclear fuel and no corresponding cost estimate, please
provide a detailed justification for why the one mil fee shouldn't be adjusted
commensurate with spending on the Yucca Mountain program.
The federal government retains the responsibility for the permanent disposal of spent nuclear fuel.
The fees to which you refer will be used to fund that permanent solution. The Department of
Energy has consistently determined, as required by the Nuclear Waste Policy Act, that the current
fee of 1/1 0-cent per kilowatt hour is adequate to cover the total system life cycle costs of
disposing of commercial spent nuclear fuel and high-level radioactive waste, using the
assumptions in place at the time; and, in accordance with the Act, the fee will continue to be
reviewed annually.
17. When will the blue ribbon commission on nuclear waste be established?
The details about the commission will be announced soon.
IS. Will the blue ribbon commission consider Yucca Mountain as a potential site
for a repository? If not, will the pane) propose alternative locations or
recommend a site selection process?
The details about the commission will be announced soon.
19. In what time frame do you ultimately foresee the Federal Government
disposing of nuclear waste and spent nuclear fuel?
DOE will meet its obligations to permanently dispose of spent nuclear fuel and high-level
waste. With respect to spent nuclear fuel, I believe it would be premature to set a
deadline at this time. 1 am confident that, as the NRC has also indicated, spent nuclear
fuel is safe in current dry storage facilities for many decades, I also look forward to the
Blue Ribbon Commission’s recommendations regarding nuclear waste storage,
reprocessing and disposal of spent nuclear fuel.
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Senator George V. Voinovich
1) Secretary Chu - Mr. Secretary, thank you for being here. As I am sure you are
aware, language included in the Energy and Water Appropriations Bill expected
you to suspend collection of payments to the Nuclear Waste Fund, because electric
customers are paying for something they aren't getting - a permanent site to store
spent nuclear fuel. I would like to know, given the Administration's decision to
terminate the Yucca Mountain repository program what is your specific strategy to
execute the statutory obligations of managing nuclear waste consistent with the
Nuclear Waste Policy Act? As a possible alternative, would DOE cooperate with
private entities that are interested in developing NRC licensed, private storage
facilities - with DOE accepting the used fuel at the nuclear power plants,
transporting the fuel to the private facility and contracting with the facility for
storage services? As another alternative, would DOE provide storage for spent fuel
at unused DOE facilities?
DOE will meet its obligations to dispose of spent nuclear fuel and high-level waste. The
fees to which you refer will be used to fund that permanent solution. Your question also
identifies several interim strategies for meeting these obligations. 1 expect that the Blue
Ribbon Commission that will soon be announced will examine these and other options. I
look forward to receiving those recommendations and working with Congress to set a
new path forward.
2) Secretary Chu - Mr. Secretary, can you explain your vision for the Blue Ribbon
Commission on Nuclear Waste. What is your schedule for putting this Commission
together - and what is the time frame for their final recommendations? Do you
believe this Commission will shed new light on a problem that DOE has extensively
researched for the past 30 years?
The details about the commission will be announced very soon, and yes, 1 am very
optimistic that new light can be shed on the problem of nuclear waste. I look forward to
the commission’s recommendations regarding nuclear waste storage, reprocessing and
disposal of spent nuclear fuel.
3) Secretary Chu - I know that environmental groups have been placing pressure on
you to deny loan guarantees for nuclear power plants if the NRC has questions
regarding their design certifications. Does this factor into your decision for
providing loan guarantees for nuclear plants? When can we expect a decision for
the leading four nuclear power plant applications?
As 1 stated at the hearing, DOE is working hard to finalize and make conditional awards.
1 remain hopeful that the first conditional awards will be made in the coming months.
4) Secretary Chu - If carbon emissions are to be reduced by 83 percent by 2050,
most energy technologies we use today will be obsolete. In Ohio, where more than 87
percent of electricity comes from coal, I am very interested in new technologies
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being developed to utilize this abundant resource in cleaner, more efficient ways so
as to generate the needed energy for Ohioans. What do you see as the Federal
government's role in making sure that adequate technologies such as Carbon
Capture and Sequestration exist, especially as it relates to coal? Is the federal
government and/or private industry currently investing enough in energy research
and development to allow the US to incorporate the technologies that will allow us to
reach our midterm and long term emission reduction goals?
I believe we must make it our goal to advance carbon capture and storage technology to
the point where widespread, affordable deployment can begin in 8 to 10 years. Through
the Recovery Act and other measures, DOE is currently investing more than $4 billion in
CCS projects. This investment is being leveraged by contributions from the private
sector that reach almost $7 billion, indicative of the role DOE plays in mitigating the
risks associated with early deployment of new technologies and helping to minimize the
time required to deploy. In addition, advanced technology for Enhanced Oil Recovery
using C02 injection, which is included in some Recovery Act projects, can stimulate
development of the CCS transportation infrastructure that will facilitate CCS deployment.
I am convinced that this timeline can be achieved, but it will require rapid adoption of
clear and stable enabling policies.
5) Secretary Chu - President Obama in his address to a joint session of Congress
earlier this year called for IS percent of cap and trade revenues to be used for
research and deployment, yet the research component of the House ACES
legislation allocations was only about one percent. The Boxer-Kerry draft increases
this investment slightly, but not nearly to the amount called for by the President.
What are the consequences of having such limited support for energy research?
We have many low-carbon technologies available to us today, and we should deploy
them to reduce or carbon emissions. Our investment in energy R & D helps develop new
technologies that may help enable us to meet our long-term emissions targets even more
cost-effectively than we can today.
6) Secretary Chu - As I am sure you are aware, several Ohio institutions and
businesses were successful in winning funding through the first round of ARP A-E
awards. I wish I could take credit, but it is our outstanding scientists and engineers
that really deserve the accolades. Is ARP A-E the best way to fund "high-risk, high-
reward" research that has the best chance of commercialization? What do you think
it will take to commercially develop viable carbon capture and storage technology?
I believe we must make it our goal to advance carbon capture and storage technology to
the point where widespread, affordable deployment can begin in 8 to 1 0 years. I am
convinced that this timeline can be achieved, but it will require sustained investment.
DOE is investing more than $4 billion in CCS, which will be matched by up to almost $7
billion more from U.S. industry. I am also encouraged by the commitments other
countries have made, and the international partnerships that are forming to drive this
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technology forward. With respect to ARPA-E, I do not have a definitive answer at this
time. However, I know that the recently-confirmed ARPA-E director will be looking
across the energy technology portfolio to determine which technologies have technical
barriers that could be addressed by this important program.
7) Secretary Chu -In your statement you mention DOE's investment of more than
$3.4 billion in smart grid projects across the country. Can you give this committee a
sense of the total investment that will be needed to create the electricity and
transmission distribution system that will be necessary to more fully utilize solar
and wind technologies (estimates vary from $60 billion to $100 billion). With the
funding how long would it take to upgrade the grid? What hurdles would need to be
overcome? Are there provisions in Kerry-Boxer to address those hurdles?
As you point out, the cost estimates for upgrading our electricity transmission and
distribution system vary', but there is no question that the total price tag is in the tens and
hundreds of billions of dollars. As I noted in my testimony, I believe the most important
element of this bill is that it puts a cap on carbon emissions that ratchets down over time.
That critical step will drive investment decisions toward clean energy, including
investments in transmission. However, the bill includes a number of other provisions that
focus on research, development and deployment of clean energy technologies. Finally,
there are issues around siting that need to be addressed.
8) Secretary Chu - You have said in the short term, energy efficiency will be our
most effective tool for reducing our carbon emissions. How close will today's
marketplace energy efficiency technologies get us to our energy efficiency goals for
2020, 2030, and 2050? What specifically will Kerry-Boxer to help get us the rest of
the way?
As I noted in my testimony, I believe the most important element of this bill is that it puts
a cap on carbon emissions that ratchets down over time. That critical step will drive
investment decisions toward clean energy, including investments in transmission. I
believe that there are a number of policies to drive investments in energy efficiency.
Minimum energy performance standards for appliances will continue to be important.
Finding ways to more efficiently deliver and finance energy efficiency services to
American families will be important. Aligning incentives for utilities to make
deployment of energy efficiency will be important. The potential for energy efficiency is
very substantial, but a range of tools and a sustained effort will be needed to realize the
potential.
9) Secretary Chu - What do you believe is a credible estimate for the number of
reactors that could be constructed in the U.S. with and without a climate bill by
2020? What about 2030 and 2050? How is the DOE engaged in developing a
stronger nuclear industry in the U.S.? Do you believe existing designs for small,
modular reactors are currently technologically feasible? Would you agree that
having a domestic capability for manufacturing the entire reactor in the U.S.
(including large forgings for existing Oen in and Oen III+ reactors, and smaller
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forgings for small and medium reactors) would be the best approach for growing
and maintaining a strong domestic nuclear industry?
I do not have an estimate for how many reactors can be built within the specific
timeframes that you mention, but 1 would observe that the current fleet of reactors was
built during a similar length of time. DOE is working hard to finalize and make
conditional loan guarantee awards. I remain hopeful that the first conditional awards will
be made in coming months. In addition, DOE’s current research and development
program includes work on advanced reactor systems that could provide improved
economic performance, safety, and proliferation-resistance. Finally, the bill sets carbon
emissions targets that ratchet down over time, which will favor nuclear and other low-
carbon energy technologies. Indeed, EIA and EPA analyses of cap-and-trade proposals
have predicted a significant expansion of nuclear power under cap-and-trade proposals
similar to Kerry-Boxer.
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Senator David Vitter
1. Mr. Secretary on October 8, 2009 you responded to a question about a few
corporations leaving the Chamber by exclaiming "I think it's wonderful."
a. Would you please tell me what facts about the Chamber you relied upon to
support the statement that the departures were "wonderful"?
b. In arriving at your position about the Chamber would you please tell me what
Chamber documents you reviewed in formulating your position?
c. In formulating your position about the Chamber, did you have any discussions
with any of the White House staff? What was the substance of the discussion?
d. In formulating your position about the Chamber, please tell me what
environmental organizations you had conversations with about the Chamber and
its position on climate change?
e. In formulating your position about the Chamber please tell me what
corporations or individuals you had conversations with about the Chamber?
My comments about the Chamber reflect my belief, as stated in my testimony, that
comprehensive clean energy and climate change legislation is essential to American
economic competiveness in the future. A growing number of businesses agree.
2. On the same day, according to press reports, you stated: "I think companies like
that-Exelon, for example, others-are saying that we have to recognize the reality: In
order to position the United States in an economically competitive place, and also to
minimize the dangers of significant climate change for our children and
grandchildren, we have got to go in this direction."
a. Mr. Secretary, according to Bernstein Research, Exelon's CEO John Rowe told
investors that if the climate legislation being proposed is passed Exelon will
initially receive $700 to $750 million in annual revenues for every $10 per metric
ton increase in the price of C02 allowances. Mr. Rowe estimates that climate
legislation will contribute 67 to 72 cents per share in 2012 and as the price of
allocations rise Exelon will receive $1 to $1.30 cents per share, courtesy of the U.S.
taxpayers. My question is: Does the Obama administration support giving tens of
billions of taxpayers' dollars to a corporation just because the corporation
supported the administration's policy objectives?
My comments about Exelon reflect my belief, as stated in my testimony, that
comprehensive clean energy and climate change legislation is essential to American
economic competiveness in the future. I also believe that the legislation will create
powerful incentives for energy companies to invest in the development and deployment
of the technologies what we need to meet our energy and climate challenges.
3. Mr. Secretary, you said on April 23, 2007, that "Coal is my worst nightmare."
Yet this bill that we are being asked to consider places a great deal of responsibility
in your hands for the future of coal, including but not limited to the formation of a
national strategy for carbon capture and sequestration deployment. How will you
reconcile your obvious dislike of coal as an energy technology' for this massive new
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responsibility not only to get CCS deployed, but get it deployed as quickly as
possible?
1 have been consistent in my statements that because the U.S. has enormous coal
reserves, and because other countries will continue to rely on coal for electricity, we are
aggressively moving CCS technology towards widespread commercial deployment.
4. Mr. Secretary, earlier this year you killed funding for hydrogen-fueled vehicles,
saying in an article the technology needs four "miracles" before it can become
widely adopted, but "saints only need three." The Congress has voted to restore
most of the funding in appropriations bills we are sending to the President.
a. Will you advise the President not to sign the Department's appropriations bill
given that the hydrogen car program has been restored?
b. Given the relative uncertainty of our low-carbon technology options in the face
of sharp C02 cuts in a bill like this, don't you think that all technologies should be
given a chance to succeed? Are you in the business of picking energy winners and
losers?
I have consistently stated that we need a portfolio approach to developing and deploying
low-carbon energy technologies.
5. On October 20, you said that the U.S. should enact C02 limits without a border
tariff, saying that it "does no one good." I do not disagree with you, but realize also
that this still leaves us the problem of international competitiveness to deal with. If
we enact this bill and nobody else does, we are making our industrial manufacturing
more expensive in the U.S. and giving manufacturers in China, India and others an
advantage. What do you propose in the alternative to a border tariff?
1 believe there are a number of approaches that can be used to address legitimate
concerns about competitiveness impacts on energy-intensive, trade-exposed industries
and the carbon leakage that could result as a consequence. The Administration believes
that the most effective approach to address concerns with carbon leakage and
competitiveness is to negotiate a new international climate change agreement that ensures
that all the major emitters take significant actions to reduce their greenhouse gas
emissions. To complement this effort, we have pursued actions in other international for
a to ensure a level playing field that can maximize the environmental benefits of our
policies without risking competitiveness and leakage problems, including the G20
initiative spearheaded by the President to phase-out fossil fuel subsidies and our joint
proposal with Canada and Mexico to phase-down emissions of HFCs, a potent
greenhouse gas, in developed and developing countries under the Montreal Protocol. The
Administration will weigh various options in the context of our international
commitments, as well as our domestic policy goals. I would also note that China and
other countries are investing heavily in clean energy technologies. We are already falling
behind in technologies that we pioneered. The greatest risk we face is from skipping the
clean energy race, not from joining it.
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Senator John Barrasso
1) You recently announced a goal for deployment of carbon capture and
sequestration technology in 8 to 10 years. You also said that coal is likely to be a
major and growing source of electricity generation for the foreseeable future. I
agree that coal will be an integral part of our energy future. We cannot turn our
backs on coal. Coal is affordable, abundant, and reliable. America has the tools and
the brains to make carbon sequestration a reality. Unfortunately, there is little
discussion about the legal framework for long-term carbon storage.
Do you think carbon capture and sequestration can become a reality without first
putting the legal framework in place?
Will companies proceed with long-term storage without certainty regarding liability
or who owns the pore space?
Do you think building the legal infrastructure for long-term carbon storage should
be a part of legislation aimed at reducing greenhouse emissions?
I agree that having a legal framework in place is a critical component of rapid
development and deployment of CCS technology. In July, 2008, EPA proposed a rule to
regulate the injection of C02 into geological formations. EPA has proposed this rule
under the authority of the Safe Drinking Water Act’s Underground Injection Control
Program. DOE has been working very closely with EPA in the development of this rule.
The final rule is currently expected next year. Several states also have passed or have
pending legislation to address C02 injection into geological formations. 1 do not have a
view at this time as to whether additional legislation is required, though I would be glad
to work with you to explore this issue further.
162
Senator Lamar Alexander
You have been very supportive of nuclear power and made recent statements that
we should increase loan guarantee levels and that we need to be building nuclear
power.
1. You say that a utility' might consider wind or solar in building new capacity.
Under current technologies, can wind or solar provide reliable base-load day-in,
day-out power to utilities?
1 believe that we will need a mix of power sources, including both renewables and
traditional sources like nuclear. The extent to which renewables can provide base-load
power depends in large part on energy storage technologies, and we should certainly use
renewable energy to meet peak loads when it is economical to do so. We have some
viable energy storage solutions today, and 1 am optimistic that we will develop even
better ones in the coming years.
2. You say in your testimony that EIA found, globally, the cumulative investment in
wind turbines and solar photovoltaic panels from now through 2030 could be $2.1
trillion and $1.5 trillion. Was there a comparable figure for nuclear and coal with
carbon capture?
1 do not have comparable estimates for the size of these other markets, though 1 believe
that they will also be substantial markets that offer major economic opportunities for the
United States.
3. What do you think is holding back industry from building new nuclear reactors?
How would you propose to address such barriers?
One barrier is financing, and we are working to address that now by moving to make
conditional awards using the $18.5 billion of nuclear loan guarantee authority that DOE
already has.
4. What does S. 1733, the Kerry-Boxer bill do to expand the deployment of nuclear
power?
This bill sets carbon emissions targets that ratchet down over time, which will favor
nuclear and other low-carbon energy technologies. Indeed, EIA and EPA analyses of cap-
and-trade proposals have predicted a significant expansion of nuclear power under cap-
and-trade proposals similar to Kerry-Boxer.
5. Do you think American nuclear power plants are safe?
Yes, our nuclear plants generally have excellent safety records. However, I believe that
safety must continue to be at the top of the list for industry and the NRC alike as we
move to restart the nuclear industry in the United States.
6. Can we store used nuclear fuel safely for 40, 60, or even 80 years?
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The NRC has said that we can safely store spent nuclear fuel in dry casks over these time
frames, and I agree with this assessment.
7. Do you believe we are likely to find a way, with the next 10 or 20 years, to recycle
used nuclear fuel that:
a. doesn't isolate plutonium?
b. we can end up with a waste that's not dangerous for more than 300 years?
c. limits the volume of waste to 10%, 5%, or even 3% of its current volume?
I am hesitant to provide specific benchmarks. However, DOE’s current program includes
research on advanced, proliferation-resistant nuclear fuel cycle and waste management
technologies that can minimize wastes, and research and development of advanced
reactor systems that could provide improved economic performance, safety, and
proliferation-resistance. I look forward to the Blue Ribbon Commission’s
recommendations on this and other issues regarding storage, reprocessing and disposal of
spent nuclear fuel.
8. Is isolating plutonium the most likely root of nuclear proliferation or is it more
likely that North Korea will produce its own enriched uranium?
There are a range of nuclear proliferation risks. Whether enrichment or reprocessing
presents the greater proliferation risk depends on the technology paths available to any
potential proliferating nation. However, with respect to today’s technologies for
reprocessing spent nuclear fuel, separation of plutonium is only one drawback. These
technologies are also uneconomic and do not sufficiently address the waste problem. For
these reasons, we continue to pursue R & D on more promising technologies.
9. Secretary Chu, in your testimony you said, "The only question is which countries
will invent, manufacture and export these clean technologies and which countries
will become dependent on foreign products?"
a. Is it possible that nuclear power is another technology where we might become
dependent on foreign innovation, technology, and products? Is there anything we
might do to regain our lead?
I agree that nuclear power offers a great opportunity for the U.S. and nuclear will need to
be part of our energy mix. DOE is working hard to finalize and make conditional loan
guarantee awards. 1 remain hopeful that the first conditional awards will be made in
coming months. In addition, DOE’s current research and development program
includes work on advanced reactor systems that could provide improved economic
performance, safety, and proliferation-resistance.
10. In recent weeks you have been quoted as saying we should double loan
guarantees for nuclear power to build an additional 4-5 plants. Do you believe it
would be a good idea to increase loan guarantees for all carbon free electricity?
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As I have noted, the $1 8.5 billion in nuclear loan authority currently available to the DOE
will enable the Department to guarantee loans for 3-4 projects in the pipeline to build
new reactors. I remain hopeful that the first conditional awards will be made in the
coming months.
11. Current proposals in the House and Senate would require a "Renewable
Electricity Standard" that up to 20% of our electricity to come from a narrowly
defined list of sources - mostly wind and solar. Shouldn't our goal be to encourage
any carbon free production of electricity rather than picking specific technologies to
achieve that goal? Why not, instead, propose a "Carbon-Free" or "Reduced
Carbon" Electricity' Standard?
I believe that nuclear power must continue to be a part of our energy mix, and that the
clean energy and climate bill passed by the Senate should reflect and contribute to
achieving that goal. 1 would be pleased to work with you to further develop this
legislation.
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Senator Boxer. Thank you very much.
The Honorable Ray LaHood, Secretary, U.S. Department of
Transportation.
STATEMENT OF HON. RAY LAHOOD, SECRETARY,
U.S. DEPARTMENT OF TRANSPORTATION
Mr. LaHood. Chairman Boxer, Ranking Member Inhofe and
members of the committee, thank you for inviting me to discuss the
Clean Energy Jobs and American Power Act. I appreciate the chal-
lenge you and your colleagues have undertaken in this important
bill.
President Obama’s Administration and the Department of Trans-
portation believe that making the transition to a clean energy envi-
ronment and combating climate change are major priorities, and
the time to act is now. We also understand that transportation con-
tributes to and is affected by climate change, and therefore our
transportation policy must be a part of the solution.
To that end, transportation will play a vital role in helping to re-
duce greenhouse gas emissions, decrease our reliance on oil, create
more livable, sustainable communities and generate green jobs. Let
me review some of the actions already underway.
In recent months, DOT has teamed up with the Department of
Housing and Urban Development and the Environmental Protec-
tion Agency to better direct Federal investments in transportation,
housing, improved air quality and water infrastructure across the
country. Our agencies support coordinated infrastructure invest-
ments and economic development as a means of creating more liv-
able neighborhoods while residents in urban, suburban or rural
communities can get to work, school, the doctor or the grocery store
without having to get into an automobile.
We know that in the U.S., shifting just 10 percent of its new
housing starts to livable communities over the next decade, Ameri-
cans would save nearly 5 billion gallons of gasoline. And people
who live in walkable communities served by transit have a much
smaller carbon footprint than those in car dependent communities
and spend less on transportation as well.
To move this agenda forward, our agencies would like to partner
with Congress to align our programs to ensure Federal spending is
effectively leveraged with other public and private investments. We
are consulting on performance measures that could be used to de-
termine outcomes, and we are developing an affordable index and
other tools to help achieve our goals. We are also providing joint
technical assistance through EPA to communities interested in co-
ordinating these types of investments right now. And we are col-
laborating on implementing sustainable community grants through
HUD, if they are funded in the 2010 appropriations bill.
Through the American Recovery and Reinvestment Act, DOT is
making significant investments in transportation-related projects
that reflect our livable and sustainable priorities. Liveability for in-
stance, is given significant weight as part of the $1.5 billion TIGER
grants, and applications are currently under review. As you know,
we are also investing $8 billion for high speed rail corridors and
other inter-city rail passenger service. The Federal Railroad Ad-
ministration’s long-term plans seek to build upon this initial in-
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vestment with a national network of passenger rail corridors that
improve mobility, service, convenience, safety and efficiency, all of
which contribute to developing livable, sustainable communities.
In pursuit of our climate change goals, we are planning to work
with EPA to develop and implement fuel economy and greenhouse
gas emissions standards for medium and heavy trucks. This follows
our successful collaboration to propose harmonized national fuel
economy and emissions standards for light duty vehicles and
trucks. We are greatly encouraged by our ability to work together
to achieve the best possible regulations without imposing undue
hardships on industry. We believe this intergovernmental approach
can serve as a model for future Government action in this area.
We look forward to working with Congress to support robust
transportation planning techniques and target investments toward
projects that reduce emissions and fuel consumption. We under-
stand that State DOTs and metropolitan planning organizations
will need new tools, technical assistance, capacity building and re-
sources to determine which investments generate the best out-
comes.
There are many, many other promising initiatives underway
throughout DOT, too numerous to discuss. I will mention just a
few. The Federal Highway Administration is developing cost effec-
tive strategies and performance measures to determine progress in
reducing emissions. The Federal Aviation Administration is con-
ducting research to improve our scientific understanding of the im-
pact of aviation emissions on climate and working with domestic
and international stakeholders to develop appropriate strategies to
develop a global impact of climate change.
And finally, the Federal Transit Administration is working to ex-
pand access to public transportation, support transit-oriented de-
velopment and conduct research to help public transportation agen-
cies operate more efficiently.
We are delighted to be here, and we look forward to your ques-
tions.
[The prepared statement of Mr. LaHood follows:]
STATEMENT OF
THE HONORABLE RAY LAHOOD
SECRETARY OF TRANSPORTATION
BEFORE THE
COMMITTEE ON ENVIRONMENT AND PUBLIC WORKS
U.S. SENATE
HEARING ON
CLEAN ENERGY JOBS AND AMERICAN POWER ACT OF 2009
OCTOBER 27, 2009
Chairwoman Boxer, Ranking Minority Member Inhofe, and Members of the Committee:
Thank you for the opportunity to discuss the Clean Energy Jobs and American Power
Act. I congratulate you on the difficult work you and your colleagues have undertaken
on this bill and your efforts to improve America’s economic competitiveness and
prosperity, reduce the Nation’s impact on climate change, and ensure America’s energy
security.
Transportation will play a key role in achieving clean energy and climate objectives. I
look forward to continued discussions to ensure that comprehensive legislation is passed
that advances our clean energy goals, protects our environment for this and future
generations, and ensure economic prosperity for all Americans.
The Obama Administration and the Department of Transportation (DOT) consider
transition to a clean energy environment and combating climate change a major priority,
and the time to act is now. We are committed to generating green jobs, decreasing our
reliance on oil, reducing pollution, and creating more livable, sustainable communities.
And we are already taking aggressive steps to act on these priorities. For instance, the
Administration — with the full support and involvement of DOT — is dramatically
improving the fuel economy of automobiles, intensifying energy efficiency and
renewable energy efforts through the American Reinvestment and Recovery Act of 2009
(Recovery Act), and working through interagency partnerships to build livable and less
energy intensive communities.
Transportation both contributes to and is affected by climate change, and I am committed
to ensuring that transportation is part of the solution. The Department is focused on
substantially reducing transportation’s contributions to greenhouse gas (GHG) emissions
and adapting to potential impacts on transportation infrastructure. This work includes
improving vehicle fuel economy, developing alternative fuels, improving system
efficiency and encouraging more sustainable transportation choices, as well as
understanding climate impacts and protecting transportation infrastructure. And we are
working with other Federal agencies, as well as State and local governments and our
transportation stakeholders, to accomplish this critical work.
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Because this committee has jurisdiction over both the climate change legislation and
surface transportation reauthorization, you will be at the forefront of ensuring that
comprehensive climate legislation works in concert with Federal transportation policies
and investments. I look forward to working with you on this effort.
We recognize that government leadership at all levels will be needed to transform our
transportation system into one that allows Americans to get to work, school, the doctor,
the grocery store, or the park without being required to get into a car. To achieve this
goal, we will need the most effective tools and strategies possible.
We have much more to do, but we are not waiting to begin taking aggressive and
meaningful actions. I am particularly pleased with one of our efforts. In recent months,
DOT has been working with the Department of Housing and Urban Development (HUD)
and the Environmental Protection Agency (EPA) in an interagency partnership for
sustainable communities to develop Federal policies that could help support and shape
State and local land use decisions and infrastructure investments to develop livable
communities where people have the option to drive less. The promise is that this
approach might lower the climate impact from the transportation sector, while also saving
American families money and increasing their mobility. Currently, American adults
travel a total of 25 million miles a day in trips of a half-mile or less and nearly 60 percent
of these are motor vehicle trips. DOT, HUD, and EPA are working together to support
the building of more livable neighborhoods with “complete” streets that increase safety
and mobility for all users by giving Americans -whether they live in urban, suburban or
rural communities-the choice of walking, biking, or riding transit instead of driving
motor vehicles. If the presence of these alternatives promotes less driving, then that will
reduce road congestion, reduce pollutants and greenhouse gases, and use land more
efficiently.
Reducing GHG emissions may be achieved through changing local transportation and
land use patterns. For instance, assuming that more travel options and supporting land
use would reduce vehicle miles traveled, an EPA analysis found that shifting 10 percent
of new housing starts to livable communities over the next 10 years would save
Americans roughly 4.95 billion gallons of gasoline. Minneapolis-St. Paul is a good
example of the benefits of adopting livability strategies. More walkable and bikeable
neighborhoods in the area have the potential to deliver estimated GHG savings from
walking and biking equal to the benefits from a shift of 12 percent of vehicles to hybrids.
The recently released Moving Cooler study, funded by a number of diverse stakeholders,
also recognizes the substantial environmental and energy benefits resulting from livable
communities. It found that compact development, complemented with pricing strategies
and support for alternative transportation modes, could reduce CO 2 emissions by up to 15
percent by 2050. These studies suggest that promoting mixed-use, connected
communities has the potential to reduce vehicle miles traveled, and thereby significantly
contribute to U.S. carbon dioxide emissions reductions.
DOT, HUD, and EPA are identifying ways to align our agencies’ programs to ensure that
our spending is effective and leveraged with other public and private investment. We are
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consulting with each other on performance measures that will be used to determine the
results we can expect from these efforts. We are jointly identifying Federal barriers that
impede performance of our programs and will seek to have them removed. We are
providing joint technical assistance through EPA’s Smart Growth Implementation
Assistance Program competition and will collaborate on the implementation of HUD’s
Sustainable Communities Grants if they are funded in the FY 2010 Appropriations bill.
We are also working to enhance the skills of transportation and housing planners, and to
develop tools such as an affordability index.
DOT has worked to ensure that livability and sustainability objectives are given
significant weight in the new discretionary spending of the Department as part of the
Recovery Act. The Transportation Investment Generating Economic Recovery (TIGER)
team is currently in the process of awarding $1.5 billion worth of competitive grants for
State and local governments for projects with significant long-term impact for the nation,
metropolitan area, or region. Criteria for selection include the project’s contribution to
sustainability and livability.
Additionally, the Recovery Act provided $8.4 billion for transit to support projects in bus
and rail car manufacturing, operation and maintenance, fixed guideway improvements,
and work that supports the operation of high efficiency buses, among other sustainable
transit needs. Selections have been made for $100 million in discretionary grants through
the Transit Investments for Greenhouse Gas and Energy Reduction (TIGGER) program
with livability and sustainability goals included as project funding criteria.
The Recovery Act also provides $8 billion for high-speed rail corridors and other
intercity passenger rail services. The high-speed rail initiative developed by the Federal
Railroad Administration seeks to fund a long term program to plan and build a national
network of passenger rail corridors. Preferred projects will improve mobility, options,
service, convenience, safety, and efficiency, and contribute to economic recovery and
development, as well as support environmental equality and livable communities.
Through the Clean Energy Jobs and American Power Act, Congress can help to foster
partnerships, encourage cross agency collaboration, and better ensure that livability is
institutionalized as a part of transportation decision making.
We also look forward to partnering with EPA, as our agencies work to develop and
implement fuel economy and GFIG emission standards for medium and heavy trucks.
DOT and EPA each have expertise in developing harmonized standards that recognize
the dual objectives of reducing consumption of fossil fuels and GHG emissions. DOT
and EPA each bring unique expertise that, through collaboration, is likely to result in
more rigorous yet achievable standards. And our recent cooperation in proposing
harmonized national fuel economy and GFIG emission standards for light-duty vehicles
and trucks is an example of how the two agencies can successfully coordinate to deliver
substantial fuel economy and environmental benefits. Such collaboration can contribute
to produce the best possible regulation of mobile sources without imposing undue or
conflicting burdens on industry.
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Our past success argues for continued cooperation. On May 19, 2009, President Obama
announced a historic national policy to reduce GHG emissions and improve fuel
economy for all new cars and light duty trucks sold in the U.S. On September 15, DOT
and EPA announced a joint proposed rulemaking that would set fuel economy and
tailpipe carbon dioxide emissions standards for passenger cars, light-duty trucks, and
medium-duty passenger vehicles, covering model years 2012 through 2016, The
standards, taken together, would deliver a fleetwide fuel economy standard of 35.5 miles
per gallon by 2016. According to EPA's preliminary analysis, the standards, if finalized,
are projected to reduce GHGs by approximately 950 million metric tons and save 1.8
billion barrels of oil over the life of the program. The program would reduce GHG
emissions from the U.S. light-duty fleet by 19 percent by 2030.
Another way to achieve our clean energy and climate goals is through more effective
transportation planning. We would like to work with Congress to support robust
transportation planning techniques to target investments to projects that reduce GHG
emissions and fuel consumption. One strategy for reducing transportation-related GHG
emissions is by integrating transportation planning with housing, land use and water
infrastructure planning. As new or additional development is contemplated, considering
where people will be located, where they will need to go, and how they should be able to
get there, can promote better efficiencies, system performance and lower carbon
emissions.
DOT’s experience and statutory jurisdiction to implement transportation planning
regulations lends itself well to accomplish the transportation planning goals contemplated
in the bill. A key mechanism by which DOT can have an impact on climate change is
through our role in financing infrastructure and promoting effective transportation
planning across the United States, including highways, airports, transit systems, and
multi-modal facilities. We have a unique opportunity to shape the transportation
infrastructure of the future to promote livability and to reduce the environmental impact
of transportation.
State DOTs and metropolitan planning organizations (MPOs) have limited experience
with the kind of planning promoted in this legislation. Consequently, we need to make
sure the program does not become unnecessarily complex and does provide the most
efficient and effective route to reduce emissions. DOT, along with our partners at HUD
and EPA, are excited to work with Congress to find the best way to invest infrastructure
dollars to decrease GHG emissions and increase mobility and economic vitality - three
areas that are inexorably linked.
The Department is already taking a number of other steps to address transportation-
related GHG emissions.
DOT’S Center for Climate Change and Environmental Forecasting sets priorities for
climate change policy analysis and research. One example of the Center's work is The
Impacts of Climate Variability and Change on Transportation Systems and
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Infrastructure. This case study of the Gulf Coast was designed to understand and address
the possible effects of climate change on transportation infrastructure and aid
transportation decision makers in determining how to account for potential impacts in the
transportation planning process. Phase I of the study was completed in 2008 and studied
how changes in climate over the next 50 to 100 years could affect transportation systems
in the U.S. central Gulf Coast region. Phase II, which was just launched, will explore
more detailed information about impacts at the local level. Phase II will be completed in
about three years, and will develop guides for transportation planners, including a risk
assessment tool to allow decision makers to understand vulnerability to climate change.
This important work has already gained considerable interest within the transportation
community about planning for transportation investments.
The Center is overseeing preparation of a report to Congress on the impact of the
Nation’s transportation system on climate change, and solutions to mitigate climate
change by reducing GHG emissions from the transportation sector. The report, mandated
by the Energy Independence and Security Act of 2007, will identify national policy
approaches, evaluate pros and cons, and estimate magnitudes of emission reductions.
This research will allow DOT to evaluate the implications of various approaches on other
transportation goals. The report results will compare strategic options to reduce
transportation emissions and will inform future research and policy development.
The Center’s Transportation and Climate Clearinghouse was launched in early 2009 and
includes information on GHG inventories, analytic methods and tools, GHG reduction
strategies, potential impacts of climate change on transportation infrastructure, and
approaches for integrating climate change considerations into transportation decision
making.
Additional efforts are underway throughout DOT’S operating administrations. The
Federal Highway Administration (FHWA) climate efforts include mitigation and
adaptation work on improvements to system efficiency, land use, and planning. FHWA
is working to evaluate how land use, transportation infrastructure, and policy changes
would affect travel activity and GHG emissions. FHWA is also working to develop cost-
effective strategies and performance for measuring progress in reducing emissions.
FHWA is working with State DOTs and MPOs around the country to address climate
change in transportation planning decisions.
FHWA is also developing a strategy to address climate adaptation issues, and a draft
framework for conducting risk-based assessments and transportation infrastructure.
Guidelines will be developed for consideration of climate change impacts and adaptation
in project development and environmental review under the National Environmental
Policy Act.
In addition, FHWA has several programs underway to enhance system efficiency by
developing and implementing innovative solutions to reduce traffic congestion and its
effects on the environment, including: enhanced design and implementation of work
zones; quicker response to traffic incidents; improved timing of traffic signals and other
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traffic management strategies; provision of information to allow travelers to make
informed decisions en route, mode and timing of trips; highway design improvements to
remove bottlenecks; and better balancing of supply and demand through congestion
pricing where appropriate.
The Federal Aviation Administration (FAA) leads the transformation to the Next
Generation Air Transportation System (NextGen). One key NextGen environmental goal
is to limit or reduce the impact of aviation GHG emissions on the global climate. To
achieve this, a key approach is to more efficiently use the Nation’s airspace, which will
lead to less fuel use and therefore have a positive GHG and air quality impact. In an
effort to reduce fuel bum and other emissions, FAA is developing and improving
environmentally friendly procedures covering gate-to-gate, terminal, and surface
operations.
FAA is leading work to improve scientific understanding of the impacts of aviation
emissions on climate. With participation from the National Aeronautics and Space
Administration, the National Oceanic and Atmospheric Administration, and EPA, FAA
launched the Aviation Climate Change Research Initiative (ACCRI) to accelerate
scientific understanding that will inform policy decisions on mitigation. FAA also
launched the Continuous Lower Energy Emissions and Noise Program (CLEEN) to
advance maturing engine and aircraft technologies for quick deployment into the fleet in
order to increase fuel efficiency and reduce emissions. FAA helped form — and is an
active participant in — the Commercial Aviation Alternative Fuels Initiative (CAAFI).
CAAFI is a broad public-private collaboration that seeks to develop and deploy
alternative jet fuels for commercial aviation which offer reductions in life cycle
emissions.
In addition, FAA is conducting research to inform Administration decisions about
potential impacts on domestic and international aviation of possible policies and their
impacts on the climate change. These policies include aircraft carbon emissions
standards, emissions cap and trade, and carbon taxes on aviation emissions.
The unique nature of the aviation sector means that its environmental impacts are not
only domestic, but international in scope. To that end, the FAA has also been working
with other Federal agencies, including EPA and the Department of State, within the
context of ongoing negotiations in the International Civil Aviation Organization to
develop a global framework to mitigate aviation’s impact on climate change.
The Federal Transit Administration’s (FT A) work on climate change falls into two main
areas: (1) catalyzing expanded public transportation service and transit-oriented
development to reduce overall transportation emissions while providing convenient and
economic mobility options; and (2) technology research and deployment that will enable
local public transportation agencies to provide their already relatively energy efficient
service in an even more efficient manner.
FTA’s grants, technical assistance, research, and policy leadership all play a role in the
agency’s efforts to address climate change. FTA funds public transportation through the
6
agency’s grant programs, FTA also provides technical assistance in planning and transit-
oriented development. Combining investment in public transportation with compact,
mixed-use development around transit stations creates synergies that amplify the
greenhouse gas reductions of each strategy and enhance overall livability and
sustainability goals of the Department. FTA’s research on alternative fuels and high
efficiency vehicles has yielded the introduction of hybrid-electric buses, hydrogen fuel
cell buses, and other low emissions technologies. Transit vehicles make ideal
demonstration vehicles because of their high visibility and centralized maintenance.
FTA is funding a new synthesis on GHG emission savings from transit through the
Transit Cooperative Research Program. FTA is developing a handbook for transit agency
managers of low carbon practices and also offers environmental management systems
(EMS) training. FTA also has sustainability partnership projects with the American
Public Transportation Association and the Association of Metropolitan Planning
Organizations.
The Research and Innovative Technology Administration (RITA) coordinates the
majority of the Department’s surface transportation research on alternative fuels,
alternative vehicles, hydrogen fuels and fuel cells, and advanced vehicle technology, all
of which address climate change concerns. RITA also works on multiple research
projects regarding hydrogen, including finding safe and effective storage materials,
testing hydrogen fuel cell vehicles, and training emergency responders on hazardous
characteristics of hydrogen.
DOT, in partnership with EPA, will analyze ways to reduce transportation-related GHG
emissions while continuing to support efforts to attain air quality and water quality
standards, learn more about harm from air toxics related to transportation, and maintain
noise reductions. Our climate change research will help us identify the potential co-
benefits of mitigation strategies, such as reductions in criteria air pollutants, as well as
potential unintended consequences of mitigation strategies, such as increased risks to
public health.
DOT is fully committed to reducing energy consumption and greenhouse gas emissions
from across the transportation sector. DOT will continue to work with the White House
Office on Energy and Climate Change Policy, the other Federal agencies, State and local
governments, and the transportation community to identify and pursue the most critical
climate change priorities.
DOT is also committed to working with Congress to ensure the passage of
comprehensive clean energy and climate change legislation that provides the most
valuable tools to achieve the most effective emissions reductions while supporting
economic growth and prosperity.
In closing, I applaud your efforts to further the debate and move us much closer to
comprehensive and effective solutions. Thank you, and I look forward to answering your
questions.
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Environmental and Public Works Committee Hearing
October 27, 2009
Follow-Up Questions for Written Submission
Questions for Secretary LaHood
Questions from:
Senator James M. Inhofe
1, Do you agree that the worker adjustment assistance provisions in Title 3, Part 2,
sections 31 1 through 313 in Kerry-Boxer are needed because this bill will cost jobs?
The Department of Transportation (DOT) is confident that the bill will create green jobs
in the transportation sector in the effort to transition to a clean and sustainable
transportation system.
2. I understand new legislation usually entails new programs. But Sen. Webb
compared the bureaucracy in Lieberman-Warner to “the old Soviet Union.”
Lieberman-Warner was 344 pages. Kerry-Boxer is 923 pages. Waxman-Markey is
1,400 pages. How would you describe the bureaucracy and mandates in this bill?
And if this is a market-based approach, why is all of this necessary?
The cap-and-trade provisions of the various comprehensive bills actually account for only
a fraction of the content of the bills, and certainly only a fraction of the total pages. We
look forward to working with Congress to implement comprehensive energy legislation
that achieves its objectives at the minimum cost to the U.S. economy.
3. Secretary LaHood, when you appeared before this Committee back in July, 1
asked you to explain the contradiction between the Administration’s opposition to
paying for a transportation bill by increasing the federal gas tax — a position I
support, by the way — and the Administration’s support for a cap-and-trade
proposal, which by design will increase the cost of gasoline. Estimates show the
increase due to cap-and-trade to be at least 20 cents per gallon, effectively doubling
the current federal gas tax. Many estimates show the increase to be even higher.
Could you please explain this contradiction in the Obama Administration’s position
on increasing consumer costs?
Most of the climate bills before the Congress create mechanisms that cushion the impact
of allowance prices on the American public. In any case, EPA’s analysis of the costs of
the Waxman-Markey Bill, which EPA believes is broadly applicable to the Boxer-Kerry
Bill as well, suggest that the cost per household in 2020 will be less than $0.50 per day.
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4. Your written testimony references the Moving Cooler report to argue that
changing transportation and land use policies can reduce greenhouse gas emissions.
According to that report, the IS percent reduction you cite would require enacting a
growth boundary on all cities of more than 50 thousand people; taking local land
use decisions away from local governments and giving them to Metropolitan
Planning Organizations; requiring that at least 90 percent of new development be
only multifamily homes or on lots of l/8 <h an acre; and increasing annual transit,
bike and pedestrian spending by 500 percent. The pricing strategies your testimony
refers to include increasing the gas tax to S2.7I a gallon — a fifteen hundred percent
increase over the current 18 cents a gallon tax, adding a national Vehicle Miles
Traveled tax on top of this higher gas tax, tolling the entire interstate, charging a fee
to drive into the downtown areas of all metro areas of more than 50 thousand
people, and charging a minimum of $200 a year to park in front of their own homes.
a. Do you support any of these measures, including the ones seemingly endorsed in
your written testimony?
The Moving Cooler report analyzed an array of actions that can be taken to reduce
greenhouse gas emissions from transportation. The analysis combined groups of actions
that together might achieve significant reductions in emissions. The Moving Cooler
“packages” of strategies could assist State and metropolitan transportation planners in
evaluating which strategies might be most appropriate for a particular area or state, in
cooperation with land use, housing and environmental planners. DOT testimony stated
that Moving Cooler and other studies suggest that promoting mixed use, connected
communities reduces vehicle travel and contribute to carbon dioxide reductions. The
Department has not endorsed any particular package of strategies analyzed in the study or
the predicted benefits.
b. Are these the types of measures you would fund under the discretionary grant
program included in the Kerry-Boxcr bill?
The Department continues to review the Manager's Amendment and has not yet
developed a position on each section of the recently released Manager’s Amendment.
Our understanding of section 1 13 is that it could provide funds for developing and
updating transportation GHG reduction targets and strategies. It could also fund
implementation of those strategies included in statewide and metropolitan transportation
plans that meet performance requirements and comply with other Federal laws. These
planning efforts could consider the types of strategies described in section 1 12 of the
Manager’s Amendment. Strategies for meeting transportation and environmental
objectives through the transportation planning process could also be considered as the
Administration works with Congress in reauthorizing Federal surface transportation
programs.
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5. This bill would require all States and all metropolitan planning organizations
(MPOs) serving transportation management areas to use scenario analysis when
formulating transportation plans.
a. What percentage of States and covered MPOs currently use scenario analysis as
defined in the Kerry-Boxer bill?
The Federal Highway Administration (FHWA) estimates that approximately 10 percent
of MPOs, as defined in the Kerry-Boxer Bill, currently use scenario analysis. However,
the majority of scenario analysis to date has not been focused on reducing greenhouse gas
emissions.
b. How much money would it take for an individual State or MPO to make the
switch to such a scenario analysis?
The cost of a scenario analysis depends on the level of sophistication of the analysis.
FHWA estimates that the low end of the range could be approximately $50,000. The use
of more sophisticated software and tools, along with the assistance of a consultant, could
cost from $60,000 to $ 1 00,000.
c. How long would it take for a State or MPO to make the change to using scenario
analysis?
This is dependent on the current modeling capabilities of the MPO, whether it has in-
house modeling expertise, and the accessibility of modeling consultants.
6. Section 113 of the chairman’s mark establishes a discretionary grant program to
be administered by the Secretary of Transportation. The language, however, is not
consistent as to whether awards are to be made to implement transportation plans,
the new requirements for greenhouse gas emissions targets and strategies, or
individual projects. At which level of specificity would you anticipate awarding
grants under this language?
DOT will gladly work with the Senate to determine the best possible strategy to award
grants under the bill’s language. We are proud of our experience with implementing the
discretionary spending as part of the American Recovery and Reinvestment Act (ARRA).
Our Transportation Investment Generation Economic Recovery Team (TIGER) is
currently in the process of reviewing applications for $1.5 billion worth of competitive
grants for state and local governments for projects with significant long-term impact for
the nation, metropolitan area, or region. Sustainability and livability are infused into our
selection process for these grants. While TIGER is focused on individual projects, we
could utilize this experience to fit any discretionary grant program Congress decides to
fund though this bill.
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7. The discretionary grant program in section 113 of the bill seems to allow, but
does not require, DOT to use up to 10 percent of the funds made available to help
metropolitan planning organizations meet the new planning requirements, but no
money is set aside for States for planning purposes. Additionally, the remainder of
the money seems to be geared towards grants for implementing, not developing, the
new strategies.
a. Do you agree with that reading of the bill?
The language of the bill can be interpreted in this manner.
b. Do you think it makes sense not to provide funding to States to comply with these
new planning requirements?
DOT continues to review the proposed legislation and currently does not have a position
on these provisions of the bill. But we intend to work with Congress to ensure that
adequate funding and resources are provided to accomplish the clean energy and climate
change objectives embodied in the legislation.
8. This language also states that “The Secretary shall have the discretion to
designate the specific modal requirements that shall apply to a project,” (page 76).
Does that mean that you could choose to provide grants only to certain modes of
transportation, regardless of the overall targets and strategies developed by the
States and MPOs?
DOT continues to review the proposed legislation and currently does not have a position
as to how this language should or would be interpreted. However, we look forward to
working with Congress to ensure that the clean energy and climate change objectives
embodied in the legislation are achieved in the most cost-effective manner.
9. During a recent briefing for my staff, staff from the Transportation Research
Board indicated that there are major information gaps with respect to attempting to
address climate goals through transportation planning. These gaps include not just
insufficient models, but also a lack of knowledge about the assumptions and actual
behavioral research to be used in models.
a. In your opinion, does the Kerry-Boxer bill direct any funding to addressing these
information gaps?
The planning provision of the Kerry-Boxer bill provides support for addressing the
information gaps with respect to addressing climate change. This could be an
improvement over current planning funds provided to MPOs.
b. If not, how would you plan to address these information gaps so that States and
MPOs are not required to take action without having the tools necessary to make
reasoned decisions?
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The Department has a Center for Climate Change that is pursuing research such as the
impending report to Congress on the mitigation of greenhouse gases from the
transportation sector. This report will help address some of the information gaps and thus
help inform transportation planning. In addition, DOT will continue to identify
information and modeling gaps that may inhibit solid and effective MPO planning and
address them through cooperative efforts with appropriate Departments of the U.S.
Government and internally as our resources allow. Planners have experience using the
best available data to inform the public and decision makers, understand the uncertainties
and risks, promote community discussion and make decisions. While climate change
presents additional challenges due to the need for additional research, data and
understanding, DOT will continue to provide the best available tools and technical
assistance to DOTs and MPOs as they incorporate GHG reduction strategies into the
long-range planning process.
10. In the DOT’S planning for a response to the impacts of climate change, have you
considered that spending funds to address this Country’s existing deteriorating
infrastructure rather than on Climate Change?
DOT recognizes the many pressing needs of the country's aging infrastructure including
maintaining the existing infrastructure. At the same time, we expect that there will be
impacts on transportation infrastructure - whether new or older - from climate change in
the coming years, and we believe it is necessary to begin to plan for this scenario.
a. How do you differentiate between climate change and those from weather
variability?
By working now to understand the state of repair of our current infrastructure and to
understand the anticipated future impacts of climate change, we can help States and
MPOs understand the types of changes to the infrastructure system needed to maintain
our transportation networks into the future, regardless of whether the impacts are
attributable to climate change or weather variability. Some of these changes may be
included in routine or regularly scheduled infrastructure management activities; some
may require entirely new efforts.
1 1. I noticed you mentioned the GHG emissions savings making neighborhoods
more walkable and bikcable, that is making more livable cities. What happens to
freedom of choice, property rights subject restrictions on urban sprawl? Do you
believe the public should be fully informed of the impacts and lifestyle changes
associated with livability, sustainability and complex legislation like S.1733?
We look forward to a full dialogue with the public on these issues. Our goal is for the
public and local governments to make more informed decisions about investing in
infrastructure. Ultimately we are confident that the public will enjoy the benefits of more
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walkable and bikeable neighborhoods, and we will be able to reduce energy consumption
and pollution,
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Senator John Barrasso
1. There are several proposals with new planning requirements that would compel
states to reduce emissions. Wyoming is very rural in nature and there is only so
much we can do to cost effectively promote walking, bicycling, and transit ridership.
These proposals may be viable options in metropolitan areas, but due to our low
population density, great distances, and harsh winters, they are not practical
transportation options for rural states like ours. Wyoming generates very little
emissions from transportation compared to other states.
Would you be open to drafting an exemption for low population density states?
Livability in rural areas is about access. Rural communities, especially those located in
remote areas, face special challenges related to livability. Lack of access to necessities
like medical facilities without use of a personal automobile can force seniors out of their
homes or even an entire community. For example, past transportation policies resulted in
the town centers of many rural communities being bypassed by the interstate highway
system, contributing to the decline of once-vibrant business centers. Many rural
communities close to urban areas are struggling with the loss of farm land and open space
as a result of dispersed patterns of development from urban growth. Also, transportation
costs are often significantly higher for residents of rural communities. We will
specifically address rural communities and small towns in our any livability program.
We are developing new, unprecedented approaches to incentivize the use of federal funds
toward investments in existing infrastructure and existing communities that will benefit
rural as well as urban communities.
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Senator Boxer. Thank you so much, Mr. Secretary.
And now, Secretary Salazar, of the United States Department of
the Interior. Welcome, Mr. Secretary.
STATEMENT OF HON. KEN SALAZAR, SECRETARY,
U.S. DEPARTMENT OF THE INTERIOR
Mr. Salazar. Thank you very much, Chairman Boxer and Sen-
ator Inhofe and the distinguished members and friends who are on
this committee.
This issue is an imperative issue of our time. President Obama
has made it clear from day one that we will succeed on this effort.
It is driven by the imperatives, many of which have come out here
today.
First, we need to get our country to a point of greater energy
independence. Second, we need to create millions of new energy
jobs here at home. And third, we need to make sure that we are
protecting our children and our planet from the dangers of pollu-
tion. That, frankly, is what this is all about. And I hear the con-
versation and the presentations by the Senators, trying to address
those issues. Our hope is that in fact, at the end of the day, as this
U.S. Senate works its way, that there will be a way in which
Democrats and Republicans can join in terms of getting a climate
change and energy bill that will finally be one that this country can
be very proud of.
Let me say I am proud of my colleagues as well. We work to-
gether as a team, as a team under the Obama administration help-
ing us to forge a new energy future for our country. We have not
let the absence of this legislation keep us from moving forward
with a number of different initiatives. I want to speak briefly about
some of the work that we are doing at Interior, because it ties into
some of the work that this committee will be doing in the days and
weeks ahead.
First, at the Department of Interior, we see ourselves and our
mission to be the stewards of America’s natural and cultural re-
sources. We have an energy and climate change role as an energy
supplier for this Nation in many ways. We are the carbon catchers
of this country in terms of carbon sequestration, both biologically
as well as geologically. We are also a primary agent of adaptation
programs for this country based on the resources that we have.
And we are a science provider, through the scientists we have at
the U.S. Geological Survey, as well as the Fish and Wildlife Serv-
ice.
Let me very quickly just say a word about the assets that we
have to fulfill these roles. The United States Fish and Wildlife
Service oversees 550 wildlife refuges and 150 million acres of fish
and wildlife refuges around the country. The Bureau of Land Man-
agement, 253 million acres. The National Park Service, 84 million
acres. Tribal lands, which we hold in trust for American native peo-
ples, 56 million acres. And in the Outer Continental Shelf, and I
know many of you are interested in that, we oversee 1.75 billion
acres of the Outer Continental Shelf.
We have educational assets that we bring to the table on the en-
ergy and climate change agenda, because we have about 500 mil-
lion people that will come to visit our icons, from the Statue of Lib-
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erty to Yellowstone to the Everglades every year. And we have per-
sonnel, some 70,000 people, which includes the scientists that are
some of the premier scientists in America in the USGS and Fish
and Wildlife.
On the energy supplier side, Madam Chairman, the conventional
fuels that we produce through the Department of Interior include
approximately 30 percent of the oil for this country from our public
lands and the submerged lands, about 30 percent of our natural
gas and 40 percent of the coal that is used in this country. That
is what we have been doing, and we continue to work on that agen-
da.
But exciting for all of us in the Department of Interior also is the
new energy frontier. And from the beginning of this year, we have
stood up the renewable energy world in the Department of the In-
terior. We moved fast forward with solar energy where we have set
aside 1,000 square miles for the development of solar energy. As
Senator Sanders said earlier, our estimates are that the solar en-
ergy potential just on those lands alone is about 100,000
megawatts, which would power 29 million homes or provide about
29 percent of the energy equivalent needed for the households of
America today.
We also are moving fast forward, because this is not pie in the
sky; we don’t want to have people thinking about whether or not
we can do it in 4 or 5 years. So we are fast tracking applications
in Arizona and California and Nevada and New Mexico, where we
hope to be able to permit by the end of next year 4,500 megawatts
of solar power. The 4,500 megawatts is the equivalent of close to
14 or 15 coal-fired power plants.
But we are not stopping with the Sun. We are also doing every-
thing we can to capture the power of the wind, both onshore as
well as offshore. On the onshore, we hope on the same time line
by the end of next year to have 800 megawatts of power stood up
with respect to wind energy. And our belief and our estimates are
that there is huge potential, especially in the Atlantic seaboard, be-
cause the Governors in those States are very excited about what
we can do with respect to offshore wind.
We have great potential with hydro power, using existing facili-
ties and not creating new dams, but using our facilities that we
currently have and moving forward with the hydro renewable en-
ergy agenda. Geothermal is big. Transmission, we are working to-
gether as a Cabinet group to move forward with transmission. We
are fast tracking transmission facilities in the West as well.
Two quick points before my time runs out here. As a carbon
catcher, I want this committee, who oversees the Fish and Wildlife
Service, to recognize the great importance of what we can do in
terms of our climate change and energy agenda. Through our ref-
uges and through the facilities that we oversee along the Nation’s
coastlines, national wildlife refuges alone and the National Park
Service alone, we have 160 wildlife refuges and 74 national parks
along the coastlines of America. And what we can do in terms of
biological sequestration there is no different than what we are pro-
posing in this bill to do in places like Brazil, Indonesia and other
places. So the deforestation aspects of this legislation are some-
thing also that we need to deal with here at home.
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We are excited, and would be delighted at some point, Madam
Chairman, to talk about the landscape conservation cooperatives,
which we are moving forward with in the Department, that can
help us essentially create carbon sinks within the United States of
America.
And finally, the USGS has moved fast forward with the creation
of protocols for carbon sequestration for coal. We are excited about
that agenda.
And in conclusion, what I will say, we can do a lot on adaptation
with water, with wildlife, with migration corridors, because we are
really at the front line in terms of seeing the consequences of cli-
mate change. And our science providers at USGS and U.S. Fish
and Wildlife will be key to moving forward with this agenda.
We at Interior and in the Obama administration, under Presi-
dent Obama’s leadership, very much look forward to working with
this committee on both sides of the aisle, as well as the rest of the
U.S. Senate, to finally, once and for all, address the signature issue
of our times, energy and climate change.
[The prepared statement of Mr. Salazar follows:]
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Statement of Ken Salazar
Secretary of the Interior
on
S. 1733,
The Clean Energy Jobs and American Power Act
Committee on Environment and Public Works
United States Senate
October 27, 2009
Chairman Boxer, Ranking Member Inhofe and Members of the Committee, I am pleased
to appear before you today to discuss S. 1733, The Clean Energy Jobs and American
Power Act, and the Department of the Interior’s role in building a new energy future. Let
me first thank you for your time, interest, and leadership on the important issues of
energy security and climate.
The Administration supports enactment of comprehensive legislation that will make
America more energy independent, create clean energy jobs here at home, and protect our
children and planet from the dangers of pollution. Under President Obama’s leadership,
the Department of the Interior is committed to helping our country build a comprehensive
energy and climate change plan.
Introduction
The Department of the Interior serves as the steward of the nation’s resources, heritage,
and cultures.
We have jurisdiction over 20 percent of the land mass of the United States and 1.75
billion acres of the Outer Continental Shelf (OCS). Interior-managed public lands and
the Outer Continental Shelf account for nearly 30 percent of domestic natural gas
production, over 30 percent of our oil production, and over 40 percent of our coal
production.
Through Interior’s Bureau of Reclamation we provide water to farmers, power to homes
and businesses from hydroelectric facilities, and recreational opportunities to boaters,
anglers, and others who love the outdoors.
The Fish and Wildlife Service - also under Interior - manages over 550 wildlife refuges
and other units of the Refuge System, encompassing more than 150 million acres of
important wildlife habitat, shorelines, and wetlands.
The National Park Service oversees our 391 National Parks, 84 million acres of treasured
landscapes and historic places, and introduces 300 million visitors each year to the
wonders and joys of America’s natural and cultural legacies.
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The Bureau of Land Management manages approximately 258 million acres of public
lands, from the Arctic tundra and coastal forests to the vast mountains, deserts, and
rangelands of the American West. These lands provide water resources, wildlife habitat,
recreational opportunities, forest products, livestock forage, and mineral and energy
resources.
Moreover, the Department, through the Bureau of Indian Affairs, manages over 56
million acres of tribal land and land owned by individual Indians. These lands, held in
trust, are managed for farming, grazing, and energy production. Some of these lands are
a rich source of conventional fossil fuels, and many have major renewable energy
potential.
The breadth of the Department’s responsibilities are perhaps most visible in Alaska,
where we manage tens of millions of acres of public land, parks, and refuges. But the
truth is, Interior has responsibilities in all 50 states, in insular areas, and with tribal
nations. The resources we manage are economic engines for communities everywhere.
As a nation, we must recognize how vital the wise stewardship of our landscapes is to our
economic well-being.
Creating Energy Independence
But just as our landscapes and outdoor amenities create jobs and fuel local economies,
the energy potential on our public lands offers great promise for a clean energy economy.
E.very year, we spend hundreds of billions of dollars to import much of the oil we need to
power our country. We have fallen behind the world in developing many of the energy
technologies that will shape our economic future. The rising costs of the failed energy
policies of the past have been unchecked for too long. As the President has said, there is
a choice before us: we can remain the world’s leading importer of oil, or we can become
the world’s leading exporter of clean energy technology.
As part of our comprehensive energy strategy, the Department of the Interior is
proceeding with oil, gas and coal development in a thoughtful, responsible way that
allows for development and also protects the environment. We reject the notion that
every piece of land or submerged lands should be explored or developed for oil and gas.
But we embrace the reality that oil, gas, and coal are part of our energy portfolio.
A comprehensive energy strategy cannot be limited to conventional energy sources alone.
America, after all, has vast clean, renewable energy potential on our public lands.
Interior oversees lands with great solar potential in the Southwest; wind potential in the
Atlantic, on the Great Plains and in the West; and geothermal potential in the West.
The great promise of these resources has led us at the Department of the Interior to
change how we do business. In the last nine months, we have used existing authorities to
launch a new renewable energy frontier for America that embraces environmentally
responsible renewable energy projects on public lands.
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Since coming into office, we have prioritized the development of renewable energy on
our public lands and our offshore waters. American business is responding. Companies
are investing in solar facilities in the Southwest, wind farms off the Atlantic seacoast, and
geothermal energy projects throughout the west. These new energy sources produce no
greenhouse gases and, once installed, they harness abundant, renewable energy that
nature itself provides.
With regard to solar energy development, we have set aside 1,000 square miles of public
lands in twenty-four “Solar Energy Study Areas” and are evaluating these for
environmentally appropriate solar energy development across the West. These two dozen
areas have the technical potential to generate nearly 1 00,000 megawatts of solar
electricity, enough to power millions of American homes. We believe that of the solar
projects currently proposed, more than 4,500 megawatts of new capacity - mostly in
California, Arizona, and New Mexico - will be permitted for construction by the end of
2010. If all of these projects came to fruition, they could potentially generate enough
energy to power roughly 1 .4 million homes.
In that same timeframe, we believe that more than 800 megawatts of new capacity will be
available from wind energy projects currently proposed on BLM lands. If this capacity is
realized, these projects could provide enough energy to power around 240,000 homes.
According to a recent Department of Energy report, “20% Wind Energy by 2030,” it is
feasible that wind could generate as much as 20 percent of the Nation’s electricity by
2030.
We are creating Renewable Energy Coordination Offices in our western states to help
speed completion of reviews on the most ready-to-go solar, wind, geothermal, and
biomass projects on public lands.
We also recognize the continued value of hydropower. It is a low cost source of energy
that emits a fraction of the greenhouse gases generated by fossil-based energy sources. It
constitutes approximately 70 percent of the current total portfolio of renewable energy
generation. The Bureau of Reclamation’s 58 hydroelectric power plants provide enough
energy to meet the residential needs of 3.6 million households, the equivalent of 80
million barrels of oil. Reclamation is the nation’s second largest hydropower producer.
Reclamation is evaluating new capacity and efficiency increases at existing projects that
could help realize undeveloped power potential.
Interior’s vast land ownership also gives us an important role in siting the new
transmission lines needed to build a transmission grid for the 21st Century and bring
stranded domestic renewable energy assets to load centers and to American homes and
businesses. Working with the Department of Energy, the Department of Agriculture, the
Federal Energy Regulatory Commission, and the Council on Environmental Quality we
are helping to develop a coordinated permitting process that can review and approve
permit applications that cross federal agency jurisdictions, and we are also and mapping
out electric transmission corridors that meet the needs of this new energy economy. We
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are also working to improve coordination on transmission with Indian tribes on their
lands, which earn' great energy potential.
Climate Impacts
At the Department of the Interior, we recognize first hand that greenhouse gas emissions
are affecting our climate. The change in climate is impacting water supplies for cities,
towns, and farms; leading to more severe droughts, hurricanes, and floods; contributing
to more intense forest fires; putting coastal communities at risk; and shifting wildlife
habitat and migration patterns.
Our land and wildlife managers are already confronting the impacts of climate change.
Reduced snowpack - particularly in the Northwest and Mountain-West - is leading to
decreased recharge of groundwater systems, increasing stress on public water systems
and reducing river flows that impact temperature, depth, and other characteristics of
spawning environments for fish. Our Arctic parks and refuges are seeing some of the
earliest impacts of possible climate change - melting sea ice threatens marine mammals
as well as coastal communities, while thawing permafrost can destabilize buildings,
roads, and facilities and disrupt the structural basis of large regions of interior lands.
The BLM is seeing increased desertification of public lands, the result of an increase in
the frequency and duration of drought. Vegetation in some places has converted to more
drought-hardy species and, in some instances, species numbers have been reduced or lost.
Our scientists are also noting changes in abundance and distribution of species, including
changes to migration patterns; the expansion of pests and invasive species; increased
vulnerability to wildland fire and erosion; and an overall reduction in carrying capacity.
Many of the iconic wildlife species that the Department manages from the Arctic to the
Everglades will see their habitat threatened by global climate change.
Other significant changes associated with increased warming include rising sea levels and
water temperatures that pose threats to marine habitats, coastal wetlands, and estuaries
which are part of more than 74 units of the National Park System and 160 National
Wildlife Refuges managed along the Nation’s coastline.
The Department’s 70,000 employees - with their scientific and land management
expertise — are already documenting these impacts and developing systems to respond to
them across the Nation. The development of successful adaptation and mitigation
strategies that address the impacts of climate change will be critical to the health of the
land, water, and wildlife resources we manage.
The Department’s developing experience with adaptive management strategies for
resource management can provide a template for future efforts. U.S. Geological Survey
stream gages, for example, are showing snowpack declines and earlier annual peaks in
river run-off in the Northwest and Mountain-West. As a result, land managers are
analyzing potentially substantial changes in management requirements for fish and
wildlife and water resources.
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Interior managers are also learning to be strategic in rebuilding facilities that are lost to
natural disasters like Hurricanes Katrina and Rita. The Fish and Wildlife Service has
repaired or replaced dozens of facilities at refuges along the coast damaged by these
storms. In the process of rebuilding facilities across the region, the Service decided not
to replace some facilities judged to be too vulnerable and relocated others to more secure
locations.
In all of these activities, the Department is putting a premium on integrating our dual
science and land management roles. Scientists at the USGS, the Fish and Wildlife
Service, Bureau of Reclamation, the Bureau of Land Management, and the National Park
Service are working hand-in-glove with our land, wildlife, and water managers who are
responsible for the more than 500 million acres of public lands and the water that the
Department oversees. The focus is to ensure that our scientists are collecting and
analyzing data that provide relevant scientific information about natural resource
conditions, issues, and problems to decision-makers in the Department, at all levels of
government, and to the general public.
Realizing this vision is an interactive process, as our land, wildlife and water managers
work with our scientists and help focus the nature of their research and analysis on the
reality of on-the-ground changes. In this context, the information they provide -
baseline natural resources scientific information, trends detection, modeling and
forecasting, together with the effective dissemination of information and decision support
tools - is key to understanding and addressing climate change and its effects.
Given its scientific expertise, the Department also plays a role in the development of
domestic carbon offset programs. For example, for the past 1 0 years the Fish and
Wildlife Service has been working with partners in its Southeast Region to increase
biological sequestration - through reforestation with native hardwoods - in refuges
there. Under authority provided in the Energy Independence and Security Act of 2007,
USGS is developing methodology to assess carbon sequestration and will use this
methodology to conduct national assessments on geological and biological carbon
sequestration.
Conclusion
Problems as complex as climate change and as large-scale as the development of a real
new energy economy demand the coordinated efforts of the executive and legislative
branches of our government and all the governments of the world. I look forward to
working with you and the United States Senate as we move toward enactment of
comprehensive legislation. The Department and its bureaus stand ready with our
shoulder to the wheel to contribute our experiences, successes, and expertise to this
effort.
Thank you. I look forward to answering your questions.
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Environment and Public Works Committee Hearing
October 27, 2009
FoIlow>Up Questions Tor Secretary Salazar
Senator James M. Inhofc
1. The bill has over a dozen different programs and provisions relating to adaptation to
climate change. Undoubtedly, the Department of Interior will be participating in, and
even potentially implementing, those programs. I am already troubled by the
inefficiencies created by litigation under the Endangered Species Act. Despite over 30
years of effort, thousands of man-hours, and millions, perhaps billions, of direct and
indirect costs, the U.S. Fish and Wildlife Service reports that only about 2% of ESA-
listed species have been "delisted" - very few of those were delisted because the species
actually recovered. Given that the Department still has a long way to go in
implementing the most significant laws it currently manages, how will the agencies
within the Department will be able handle such a tremendous new workload under
this bill?
Response: Addressing the observed impacts of climate change, several of which I noted
in my testimony, is an ongoing activity at the Department stemming from our
responsibility as stewards of our natural resources. As reported by the Intergovernmental
Panel on Climate Change, “[adaptation will be necessary to address impacts resulting
from the warming which is already unavoidable due to past emissions.” (Contribution of
Working Group II to the Fourth Assessment Report of the IPCC, 2007.) I am committed
to working within the Administration and with Congress to ensure that we have the
necessary authority and funding to deal with the impacts to land, water, wildlife and
people caused by climate change.
2. Both you and Deputy Secretary Strickland have previously slated that you did NOT
believe that laws like the Endangered Species Act should be used to regulate greenhouse
gases. How will the provisions in S. 1733 affect whether the Department considers
global warming when implementing and enforcing laws like the ESA?
Response: Based on our initial review of the bill, it does not appear that S. 1733 will
affect the Department of the Interior’s obligations and authorities to implement and
enforce the Endangered Species Act (ESA).
3. What do you envision the Department's role being in implementing programs
aimed at helping species and resources adapt to climatic changes? Will the
Department focus only on perceived impacts from manmade global warming or will
you also consider ecological impacts from naturally-occurring changes in climate?
Please elaborate on how you will deal with both man-made and naturally occurring
climate impacts.
Response: In order to fulfill our broad responsibilities with regard to the land, water,
marine, fish and wildlife, tribal, and cultural resources for which the Department has
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stewardship and management responsibilities, the Department would consider all of the
impacts to resources and species from changes in climate, regardless of whether the
causes of climate change are natural, anthropogenic, or not determinable.
4. You mention that DOl has been assisting with many renewable energy projects
including wind, solar, and geothermal. How many of those projects did not receive
any federal subsidy? For those projects that did receive federal subsidies, what was
the amount and percent of total project costs for federal subsidy received for the
average wind project? The average solar project? The average geothermal
project?
Response: It is important to understand the role of federal subsidies in promoting new
energy technologies. A recent Environmental Law Institute report, titled “Estimating
U.S. Government Subsidies to Energy Sources: 2002-2008", September 2009, may
provide useful information.
5. Environmentalists in West Virginia recently filed a law suit under the Endangered
Species Act, claiming that the Wind Turbines could threaten the Indiana bat. In
California's Mojave Desert, development of solar and wind facilities has been delayed
due to concern over the region's tortoise population. Lawsuits and similar scenarios have
pitted ESA duties against the importance of renewable energy, two goals that DOI shares.
As DOI works to build transmission lines and increase these renewable sources of
power, how will it balance the needs to reduce global warming with endangered
species protection?
Response: As we augment transmission infrastructure and increase energy production
from renewable sources, the Department will carefully balance our energy needs with our
responsibilities under the Endangered Species Act. In this regard, on October 29 lh the
Administration announced a Memorandum of Understanding that relates to the permitting
of new transmission lines. The agreement specifically recognizes the Department’s role
in ensuring that siting of transmission lines is carried out in a way that protects our
natural resources, and it contains specific provisions that relate to work under the
National Environmental Policy Act and consultation under the Endangered Species Act.
6. How does DOI plan to balance the needs of species adaptation and water with the
needs of water users, such as food producers, agriculture and towns who depend on
BLM water for their existence?
Response: The Department is committed to processes that provide interested
stakeholders the opportunity to comment on proposed Federal actions. In this manner,
the needs of interested stakeholders will be appropriately considered.
7. In your testimony you mentioned the "failed energy policies of the past" as noted that
oil, gas, and coal are "part of our energy portfolio." According to E1A, fossil fuels
account for 84% of the primary energy consumed in the United States and a recent report
from Congressional Research Service found that the US endowment of recoverable oil
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was 167 billion barrels. This figure is considerably larger than the 21 billion often cited
by a number of my colleagues across the aisle, and is the equivalent of replacing
America’s current imports from OPEC countries for more than 75 years.
A. Do you think, without damaging our economy or energy stability, we could
successfully and quickly turn a great portion of that 84% to renewable low carbon
energy sources?
Response: Time and resources are essential elements of responsible and economical
energy development, whether it is based on renewable or fossil fuel sources. While there
is no quick fix to meeting our nation’s energy challenges, the Department of the Interior
is committed to managing America’s public lands for balanced oil, natural gas, and coal
development, and to facilitating environmentally responsible renewable energy projects
that can help power President Obama’s vision for a clean energy future and greater
energy independence.
B. Considering the massive oil and natural gas reserves in the US, do you think that
part of our "failed" past energy policies include not tapping further into these
valuable resources? Would you be opposed to further exploration and utilization of
these resources to help lessen our foreign oil dependency during what could be a
slow transition to other energy sources?
Response: Our Nation needs a balanced and comprehensive energy policy, which
includes further exploration and development of domestic oil, coal, and natural gas. As
we transition to a clean, renewable-based energy economy, oil, gas, and coal are and will
continue to be a part of our energy mix.
8. Has DOI worked with any organizations or researched on its own the possible
effects of wind turbines on local climate and weather patterns? Has DOI done any
studies or worked with any organizations to investigate how wind energy
development impacts critical military radar systems, a concern of many of my
colleagues along the eastern seaboard and throughout the country.
Response: 1 am not aware of any specific research at the Department related to the
impacts of turbines on weather patterns. In those instances where wind development
takes place on lands or in waters under the Department’s jurisdiction and may have an
impact on radar systems, the requirements of the National Environmental Policy Act
would ensure that appropriate federal agencies, including the Federal Aviation
Administration, the Department of Defense, or the National Oceanic and Atmospheric
Administration are involved in the permitting of any wind energy project.
9. According to your testimony, the Bureau of Reclamation has 58 hydroelectric power
plants that provide for the residential energy needs of 3.6 million households. The same
number of households could be flowered by only 3 large coal or nuclear power plants.
Noting this inefficiency, as well as the importance of our nation's waters, are these
hydroelectric plants the best use, especially when taking into account these plants'
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potential to obstruct fish passage to spawning grounds or to the ocean, to degrade
both aquatic and streamside habitats, and to impact water quality by lowering the
amount of dissolved oxygen in the water?
Response: While I am not familiar with costs associated with bringing additional nuclear
power online, I share your concern that we must manage our energy resources in
environmentally responsible ways. At facilities under its jurisdiction, the Department
funds activities related to Endangered Species Act compliance and habitat restoration.
Many of these projects are located at sites that provide water for irrigation, infrastructure
for flood control, or other benefits. In this context, hydropower is a low cost source of
energy that emits a fraction of the greenhouse gases generated by fossil-based energy
sources.
10. Given the fact that DOI has 70,000 employees with "scientific and land
management expertise" that are already addressing adaptation problems with
climate change throughout the nation, how does this bill benefit the DOI other than
by with a windfall of extra money taken from the revenues of a national energy tax?
What specific language or areas in the bill will give DOI a greater ability to address
climate change?
Response: Global climate change is a complex challenge that requires leadership and
new and innovative solutions and incentives. This legislation highlights the lead role of
the Department of the Interior as the steward of America’s public lands and natural
resources.
1 1 . Section 362 on page 345 of the Chairman's Mark, states the following:
"It is the policy of the Federal Government, in cooperation with State and local
governments, Indian tribes, and other interested stakeholders, to use all practicable
means to protect, restore, and conserve natural resources so that natural resources
become more resilient, adapt to, and withstand the ongoing and expected impacts of
Climate change, including, where applicable, ocean acidification, drought, flooding, and
wildfire. "
Further on Section 363 defines the term natural resources as: "Fish, wildlife, plants,
habitats, and terrestrial, freshwater, estuarine, and marine ecosystems of the United
States, "
The Chairman's mark would create more than 50 pages of new federal law establishing a
new national obligation to use "all practical means" to protect fish and wildlife from
climate change, but the proposal doesn't contain even a single a paragraph about
safeguarding our ability to feed ourselves. Does this seem like a good idea to you?
Response: The health of the environment and our ability to feed ourselves are
inextricably linked. Ensuring well-functioning ecosystems promotes healthy lands, fish,
and wildlife. As we work to address this challenge, we are working to ensure a healthy
planet and the continued ability of our lands and waters to provide sustenance.
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12. What provisions of the Chairman's mark ensure that farmers and ranchers will
"become more resilient, adapt to, and withstand the ongoing and expected impacts of
climate change?"
Response: I believe that any actions that we take that benefit the health of the public
rangelands under the Department’s jurisdiction that are available for grazing will
ultimately benefit the ranchers and farmers who utilize those lands.
13. If this bill became law, could the mandate to employ "all practical means " [sicj
to protect fish and wildlife be used in litigation to undermine federal and state laws,
agreements and contracts governing the allocation of water resources and the use of
public lands?
Response: It would not be appropriate for me to speculate about potential litigation that
could arise under this yet-to-be enacted legislation. Climate change is a complex
challenge that requires leadership and new and innovative solutions and incentives. We
stand ready to work with the Committee to ensure that the necessary authorities are in
place to help us address the resulting resource challenges.
14. Could this mandate to employ "all practical means" (sic] to protect fish and
wildlife be used to justify involuntary re-allocations of water, land and other
resources away from current users in order to protect fish and wildlife?
Response: As noted previously, it would not be appropriate for me to speculate about
potential litigation that could arise under this yet-to-be enacted legislation.
1 5. Should the bill put safeguards for domestic agriculture on an equal footing with
safeguards for fish and wildlife?
Response: While we defer to the Department of Agriculture for any substantive
responses related to the domestic agriculture sector, any actions taken for the benefit of
the health of our public lands will also benefit the ranchers and farmers who utilize those
lands.
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Environment and Public Works Committee Hearing
October 27, 2009
Follow-Up Questions for Secretary Salazar
Senator John Barrasso
1. Communities in coal country have tried to develop renewable energy such as wind,
which could lead to job growth.
Unfortunately, they are running into some obstacles. There was a recent article in the
Washington Post entitled "Tiny bat pits green against green."
The sub-headline is "Wind farm could cut carbon, but could it also kill endangered
species?" The article is about a Chicago company trying to build wind turbines in West
Virginia to generate clean energy and jobs in the region. Environmentalists apparently
think the turbines might hurt an endangered bat and are suing to block the construction of
the turbines under the Endangered Species Act.
In my home State of Wyoming we have run into the same problem, where environmental
groups are blocking wind production across large areas of my home State because of the
sage grouse. How can we build green renewable energy if we do not provide
regulatory relief in any climate change bill to allow such projects to move forward
without all the red tape?
In addition, how can we say that green jobs are going to replace lost jobs in coal
country if all attempts to do so are being blocked by environmentalists?
Response: The Administration is moving forward - successfully - on a number of
energy fronts, including development of both conventional and renewable resources. The
Department has taken a number of steps over the past months to ensure that this
development occurs responsibly and in a more coordinated fashion. For example, the
Department:
• created the first-ever framework for offshore renewable energy development;
• clarified the relationship between the Federal Energy Regulatory Commission and
the Department with respect to potential offshore renewable projects;
• funded and staffed Renewable Energy Coordination Offices in western states to
help complete reviews on the most ready-to-go solar, wind, geothermal, and
biomass projects on public lands;
• set aside 1 ,000 square miles of public lands in 24 “Solar Energy Study Areas” that
BLM is evaluating for environmentally appropriate solar energy development
across the West; and
• entered into MOUs with -
o the State of California to more efficiently and effectively permit renewable
energy projects on Department lands in California;
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195
o The Western Governors’ Association, DOE and USDA for identification
and uniform mapping of wildlife corridors and crucial habitats; and
o Eight other federal agencies to better coordinate the process of permitting
transmission infrastructure across federal lands.
These actions demonstrate our commitment to development of our energy resources in a
thoughtful, responsible way that allows for development and also protects the
environment.
2. 1 recently introduced a bill that determines the ownership of the pore space below
federal lands. This issue must be determined before long-term carbon storage projects
will occur, particularly in the West where so much of our land is federal land.
Do you believe the federal government should own the pore space below federal
lands?
Response: We recognize the importance of this issue. Here in the Department, the U.S.
Geological Survey has been developing a methodology to assess the volume of pore
space in subsurface rocks that is able to store carbon dioxide for tens of thousand of
years. As we move forward with actions like this that are intended to facilitate the large-
scale development of geologic carbon sequestration, the issue of pore space ownership
must be resolved. Congressional action may be necessary to accomplish this.
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196
Senator Boxer. Thank you very much.
And EPA Administrator, Lisa Jackson, welcome.
STATEMENT OF HON. LISA P. JACKSON, ADMINISTRATOR,
U.S. ENVIRONMENTAL PROTECTION AGENCY
Ms. Jackson. Thank you, Chairman Boxer, thank you to Rank-
ing Minority Member Inhofe and members of the committee for in-
viting me to testify about the Clean Energy Jobs and American
Power Act. It is always a good day when I join my colleagues from
the Administration here and EPA’s authorizing committee.
I last appeared before this committee on July 7th. Since then,
this Administration has, under President Obama’s leadership,
taken unprecedented steps to decrease America’s dependence on
oil, put our Nation in the lead of the 21st century energy economy
and reduce the greenhouse gas pollution that threatens our chil-
dren and grandchildren.
On September 15th, for example, as you have already heard, Sec-
retary LaHood and I jointly announced coordinated DOT and EPA
rulemakings to increase fuel efficiency and reduce greenhouse gas
emissions of cars and light trucks through the year 2016. The joint
DOT/EPA rules will reduce the lifetime oil consumption of those ve-
hicles by 1.8 billion barrels. That will mean eliminating more than
a billion barrels of imported oil, assuming the current ratio of do-
mestic production to imports does not improve.
At today’s oil prices, we are talking about saving $78 billion of
the dollars that America would otherwise give to other countries
for their oil. In the process, the rules will avoid nearly a billion
metric tons of greenhouse gas pollution. And we have heard each
of my colleagues here describe other steps that the Administration
has already taken to make America’s economy stronger by getting
it running on clean energy.
Even as the President and members of his Cabinet move forward
under existing authority, we continue urging Congress to pass a
new clean energy law. Only new legislation can bring about the
comprehensive and integrated changes that are needed to restore
America’s economic health and keep the Nation secure over the
long term. This committee held its July 7th hearing shortly after
the House of Representatives had passed the American Clean En-
ergy and Security Act. So I took the opportunity to echo President
Obama’s request that the Senate demonstrate the same commit-
ment that we had seen in the House to building a clean energy
foundation for a strong American economy.
While the introduction of the Clean Energy Jobs and American
Power Act on September 30th shows that the Senate is responding
to the President’s call to action, and I commend you, Madam Chair,
and Senators Kerry and Kirk, for introducing that bill. I applaud
the many Senators, including members of this committee, who have
contributed meaningfully to the Chairman’s mark, and I thank
Senator Graham for joining with Senator Kerry in a recent state-
ment that reminds all of us that giving America control over its en-
ergy future can and should be a bipartisan mission.
Earlier this year, EPA ran the major provisions of the House
Clean Energy legislation through several economic computer mod-
els. When it comes to the specifications that the models are de-
197
signed to detect, the Clean Energy Jobs and American Power Act
is very similar to the House legislation. Nevertheless, EPA has ex-
amined the ways in which the Senate bill is different and has de-
termined which of the conclusions reached about the House passed
bill can confidently be said to apply to the Senate bill as well.
EPA delivered the results of that inquiry to the committee last
Friday, and the members can review the report in detail. But let
me just state some of the key projections about the House bill that
EPA feels confident also apply to the Clean Energy Jobs and Amer-
ican Power Act.
First, the legislation would transform the American economy
from one that is relatively energy inefficient and dependent on high
polluting energy to one that is highly energy efficient and powered
by advanced, cleaner and more domestically sourced energy. Sec-
ond, the legislation would bring about that transformation at a cost
well below 50 cents per day per American household in 2020.
Third, the region by region cost differences would be small. Fi-
nally, if the U.S. adopted the legislation, then the world could avoid
a 2 degree Celsius rise in temperature over pre-industrial levels
without assuming international action any more ambitious than
the goals agreed to at the July 9th major economies forum. That
is good news, because as the U.S. global climate change research
program reported in June, a 2 degree Celsius rise would subject the
American people to unacceptable risk from catastrophic harm, from
intensified droughts, wildfires, spring floods, heat stress to live-
stock and much more.
Madam Chairman, the American people have waited decades
while our Nation has become increasingly dependent on foreign en-
ergy sources, while our global competitors create the clean energy
jobs of tomorrow, and while we fail to safeguard the well-being of
our children and our grandchildren. I think Americans are tired of
listening to the same corporate interest groups that vastly exagger-
ated the cost of reducing acid rain pollution and of reformulating
gasoline. I think Americans want reform that harnesses the coun-
try’s can-do spirit. I think they want to fuel long-term economic re-
covery with a wise investment that sparks a clean energy trans-
formation and protects our children and grandchildren.
The Clean Energy Jobs and American Power Act is a significant
milestone on that road. There of course remains the road ahead.
There are many Senators on and off this committee who have tre-
mendous value to add. Thank you for your continuing work, and
thank you for inviting me to testify today.
[The prepared statement of Ms. Jackson follows:]
198
Statement of Lisa P. Jackson
Administrator, U.S. Environmental Protection Agency
Senate Committee on Environment and Public Works
Legislative Hearing on S. 1733, the Clean Energy Jobs and American Power Act
October 27, 2009
Chairman Boxer, Ranking Minority Member Inhofe, and members of the Committee,
thank you for inviting me to testify about the Clean Energy Jobs and American Power Act.
I last appeared before this Committee on July 7. Since then, this Administration has,
under President Obama’s leadership, taken unprecedented steps to decrease America’s
dependence on oil, put our nation in the lead of the 21 st Century energy economy, and reduce the
greenhouse-gas pollution that threatens our children and grandchildren.
On September 1 5, for example. Secretary LaHood and I jointly announced coordinated
Department of Transportation and Environmental Protection Agency rulemakings to increase the
fuel efficiency and reduce the greenhouse-gas emissions of cars and light-duty trucks of model
years 2012 through 2016. The rules will reduce the lifetime oil consumption of those vehicles by
1 .8 billion barrels. That will mean eliminating more than a billion barrels of imported oil,
assuming the current ratio of domestic production to imports does not improve. At today’s oil
prices, we are talking about saving 78 billion dollars on buying oil from other countries. In the
process, the rules will eliminate nearly a billion metric tons of greenhouse-gas pollution.
Each of my colleagues here can describe other steps that this Administration has already
taken to make America’s economy stronger by getting it running on clean energy.
Even as the President and the members of his Cabinet move forward under existing
authority, we continue urging Congress to pass a new clean-energy law. Only new legislation
can bring about the comprehensive and integrated changes that are needed to restore America’s
economic health and keep the nation secure over the long term.
This Committee held its July 7 hearing shortly after the House of Representatives passed
the American Clean Energy and Security Act. So 1 took the opportunity to echo President
Obama’s request that the Senate demonstrate the same commitment that we had seen in the
House to building a clean-energy foundation for a strong American economy.
The introduction of the Clean Energy Jobs and American Power Act on September 30
shows that the Senate is responding to the President’s call to action. I commend you, Madame
Chairman, and Senators Kerry and Kirk, for introducing that bill. 1 applaud the many other
Senators, including members of this committee, who contributed meaningfully to the introduced
legislation. And I thank Senator Graham for joining with Senator Kerry in a recent statement
that reminds us all that giving America control over its own energy destiny can and should be a
bi-partisan mission.
Earlier this year, EPA ran the major provisions of the House clean-energy legislation
through several economic computer models. When it comes to the specifications that the models
199
can detect, the Clean Energy Jobs and American Power Act is very similar to the House
legislation. Nevertheless, EPA has examined the ways in which the Senate bill is different and
determined which of the conclusions reached about the House-passed bill can confidently be said
to apply to the Senate bill as well.
EPA delivered the result of that inquiry to the Committee last Friday, and the members
can review the report in detail. But let me just state three of the projections about the House bill
that EPA feels confident also apply to the Clean Energy Jobs and American Power Act.
First, the legislation would transform the American economy from one that is relatively
energy inefficient and dependent on highly-polluting energy production to one that is highly
energy efficient and powered by advanced, cleaner, and more domestically-sourced energy.
Second, the legislation would bring about that transformation at a cost of less than 50
cents per day per American household in 2020.
Third, the finding that regional cost differences would be small applies to the Senate bill
just as it did to the House legislation.
The American people have waited decades while our nation has become increasingly
dependent on foreign energy sources; while our global competitors create the clean energy jobs
of tomorrow; and while we fail to safeguard the wellbeing our children and grandchildren.
I think Americans want reform that harnesses the country's can-do spirit. I think they
want to fuel long-term economic recovery with a wise investment that sparks a clean-energy
transformation in our economy and that protects our children and grandchildren.
The Clean Energy Jobs and American Power Act is a significant milestone on the road to
that reform. There of course remains road ahead, and there are many Senators on and off this
Committee who have tremendous value to add. Thank you for your continuing work, and for
inviting me to testify today.
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200
Environment and Public Works Committee Hearing
October 27, 2009
Follow-Up Questions for Written Submission
Senator Tom Udall
1. As currently drafted the legislation puts the point of regulation (POR) for natural gas liquids
(NGLs) at the point of fractionation, and requires the owner of the NGLs to acquire an allowance
for those products, even though a large percentage of these NGLs will not be combusted and
therefore will be non-emissive because they will be used as building blocks for petrochemical
and plastic products. The legislation contemplates that the owner of the NGLs will be
compensated for the cost of those allowances when the NGLs are sold to the end use customer —
most likely a petrochemical or refining facility. The owners of those facilities will, in turn, are
able to obtain “compensatory” allowances for their non-emissive, feedstock use of those
products. 1 have some questions about the efficiency of this arrangement and would greatly
appreciate EPA’s technical advice on how to improve it.
• Since petrochemical facilities use the vast majority of their NGL’s as a feedstock in the
manufacturing of plastics and refiners who use NGLs for blending with motor fuels are
already covered facilities that must present allowances to EPA for their emissions under
the bill, would it be simpler from a regulatory standpoint to put the responsibility for
acquisition of the allowance on the small portion of NGL's being actually used as a fuel?
Administrator Jackson Response:
EPA staff stands ready to provide your office with technical assistance in determining
whether the approach you describe would be simpler and at least as effective.
• Linder the proposed draft is there an opportunity for regulated entities to take advantage
of incomplete pass-through of allowance costs in the transaction between the owner at
fractionation and the ultimate consumer, thus creating an opportunity to create windfalls
through the compensatory allowance structure? If so, what steps could be taken to
prevent any windfalls?
Administrator Jackson Response:
EPA staff stands ready to provide your office with technical assistance in identifying
whether any such risk exists and, if so, designing appropriate steps to eliminate it.
• Is EPA prepared to institute a regulatory program to ensure that all costs incurred by the
owner at fractionation are fully recovered and windfalls are avoided and if so, how would
such a regulatory program potentially work?
201
Administrator Jackson Response:
If legislation like S.1733 were enacted, EPA would, under the authorization contained in
the statute, begin immediately to prepare to institute such a program in time to begin the
emissions allowance allocation system and emissions cap established by the statute.
Senator James M. Inhofe
1. Administrator Jackson, Sen. Barrasso and 1 sent you letters on the endangerment finding
in August and September, and heard no response. We finally got a stack of documents yesterday
evening. It seems the only time I get responses from you is the night before you testify before
the committee. I am very disappointed with this, especially since you said in your nomination
hearing that you would treat requests from the minority the same as those from the majority.
This has become a pattern and practice. Will this continue, or can you commit to me to respond
to my requests in a timely and transparent fashion?
Administrator Jackson Response:
EPA has responded to your requests in a timely fashion in light of the scope of the requests, and
we will continue to respond in a timely and transparent manner.
2. Administrator Jackson, Michigan and California have both tried to create green jobs and
move to a so-called “green economy.” Yet, California has a 12.2 percent unemployment rate,
the nation’s 4 th highest; Michigan’s is 15.3 percent, the nation’s highest. These are far higher
than the national rate of 9.8 percent. In light of your considerable experience with green jobs,
can you explain what is happening in those states? How would putting a price on carbon help
those states, when we know, according to CBO, that cap-and-trade results in a net loss of jobs?
Administrator Jackson Response:
The economic challenges facing our states are the result of a number of circumstances which
vary to some extent by state. What is clear is that states and the nation as a whole cannot stay
competitive if we don’t move to a 2 1 st century economy powered by low-carbon energy while
China and other major economies do. I applaud the efforts of California and Michigan to
position their economies to take advantage of the move to clean energy and green jobs. Putting a
price on carbon will help those states and others make further progress by providing a strong
price signal for the development and deployment of clean energy that will provide the foundation
for our country’s economy going forward.
3. EPA concedes on page 3 of its analysis that Kerry-Boxer’s mandates and standards
restrict the way sources can meet the cap, which will increase the cost without delivering
additional emissions reductions. Can you explain this for me?
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Administrator Jackson Response:
As stated in EPA’s analysis of S. 1 733, a cap-and-trade policy “assures that the cap is met at the
cheapest possible cost to covered sources while inducing long-term innovation and change in the
production and consumption of energy-intensive goods in related markets.’' This section of the
analysis also states that, “Standards that impose restrictions on the way in which a particular
subset of sources meet the cap will reduce this flexibility and, if binding, likely increase the costs
without delivering additional emission reductions.” This statement was intended to contrast a
cap-and-trade policy with generic command-and-control policies, and does not refer to specific
provisions of H.R. 2454 or S. 1733.
4. Do you agree that the worker adjustment assistance provisions in Title 3, Part 2, sections
311 through 313 in Kerry-Boxer are needed because this bill will cost jobs?
Administrator Jackson Response:
No. I believe the bill will create good, clean energy jobs that cannot be moved overseas. As we
build a workforce trained in the skills needed for a clean energy economy, we will not only be
putting Americans to work, but we will be making changes that reduce energy costs. For
example, homes across America can be weatherized and made more energy-efficient, creating
jobs that can’t be outsourced while saving families hundreds of dollars a year.
5. I understand that new legislation usually entails new programs. But Sen. Webb
compared the bureaucracy in Lieberman-Wamer to “the old Soviet Union.” Lieberman-Warner
was 344 pages. Kerry-Boxer is 923 pages. Waxman-Markey is 1,400 pages. How would you
describe the bureaucracy and mandates in this bill? And if this a market-based approach, why is
all of this necessary?
Administrator Jackson Response:
The cap and trade program in the Kerry-Boxer and Waxman-Markey bills would provide a
streamlined, highly efficient mechanism for obtaining the deep reductions in greenhouse gases
that are needed to address the threat of climate change. But we also know that the price signal
the cap and trade program would establish may not be strong enough in the early years to spur
the technological changes needed for the nation’s transition to a clean energy economy. Market
barriers can also lessen the impact of the price signal the cap and trade program would provide.
The bills deploy a number of complementary measures to address these well-recognized issues.
6. I note that you mentioned the joint EPA/DOT regulation to set auto emission standards
and fuel economy standards for motor vehicles. Both standards are for the 2012-2016 model
years. As I understand it, DOT has to provide a certain amount of lead time to permit
manufacturers to tool-up. EPA has the same problem, but only because it has proposed to issue a
positive endangerment finding which would require the setting of motor vehicle emission
standards to address GHG pollutants. Now I know that EPA’s regulations will get some nitrous
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203
oxide and methane emissions reductions, but the bulk of its reductions will be in carbon dioxide
emissions. I believe that as far as C02 is concerned EPA and DOT will get roughly the same
amount of emissions reductions. Therefore I have two questions: is there a court imposed
deadline to get the EPA portions of this rule out? Did you weigh the cost-benefits of not making
carbon dioxide a regulated pollutant, suffering the emission reductions not achieved, against the
costs of putting many small sources in legal jeopardy of having to decide to get or not
get construction permits for new construction and significant modifications?
Administrator Jackson Response:
EPA has issued its proposed light-duty vehicle standards as part of its efforts to expeditiously
respond to the Supreme Court’s now 2 !4 -year-old ruling that greenhouse gases are air pollutants
under the Clean Air Act and that EPA must answer the endangerment question posed by a now
10-year-old rulemaking petition for vehicle greenhouse gas standards under section 202(a) of the
Act. While there is not a court-ordered deadline for EPA to issue the proposed standards, 1 take
very seriously the obligation to respond to the Supreme Court’s decision. We note that the
Supreme Court directly addressed the issue of whether DOT regulations are sufficient to absolve
EPA of its mandate; specifically the court finding stated “ that DOT sets mileage standards in no
way licenses EPA to shirk its environmental responsibilities. EPA has been charged with
protecting the public’s “health’’ and “welfare,” 42 U. S. C. §7521 (a)(1), a statutory obligation
wholly independent of DOT’S mandate to promote energy efficiency.”
It is also important to remember that if EPA were to further delay this proposal, there could be
separate federal and state regimes independently regulating light-duty vehicles to reduce fuel
consumption and GHG emissions: NHTSA’s CAFE standards, and the GHG standards
applicable in California and other states adopting the California standards. The joint EPA-
NHTSA proposal would allow automakers to meet both the NHTSA and EPA requirements with
a single national fleet. In addition, California’s commitment to defer to the federal program is
also conditioned on EPA adopting GHG standards of this type.
For several reasons, the estimates of benefits and costs presented by EPA and NHTSA, while
consistent, are not directly comparable and should not be expected to be identical. EPA estimates
that the proposed GHG standards will result in a reduction of 947 million metric tons of C02
from the 2012-2016 vehicles over their lifetime. DOT has estimated that the CAFE program
alone will result in a reduction of 639 million metric tons of C02. In response to your second
question, EPA is addressing concerns over PSD permitting by a proposed rule on PSD permitting
requirements, which is discussed further in the answer to question #30.
7. Many think the PSD tailoring rule is legally suspect and if the rule is overturned everyone
that followed your regulation would be in legal jeopardy. You may leave them alone, but can
EPA protect them from citizen suits? I know you have some legal theory about judges keeping
an illegal rule effective until EPA makes corrections.
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Administrator Jackson Response:
1 believe the proposed PSD tailoring rule is legally sound. It would focus state permitting efforts
on the largest sources of greenhouse gas emissions for at least five years and describes a process
for evaluating future regulation of additional sources. In the case of a citizen suit, should the
final rule remain as proposed, the court would have a solid basis for rejecting the challenge
because of the rule’s legal foundation, which is described at length in the preamble to the
proposed rule. See, in particular, 74 Fed. 55292, 55303-55320 (October 27, 2009). EPA will, of
course, carefully consider the comments it receives in response to the proposal.
a. Why do you think that will work when I am told you have tried to get the Act to
work first by proposing streamlined permitting for small sources?
Administrator Jackson Response:
I believe the proposed rule’s legal foundation will provide a court with a solid basis
for upholding it. As we develop the final rule, we will take into account the public
comments we receive, and I am confident the rule will be stronger as a result. The
proposed rule includes a discussion of EPA’s intention to develop streamlining
techniques for smaller sources to the extent feasible.
b. Again, what is the rush? I have been told you arc pressuring Congress to pass
climate change legislation. Is that true? Or do you really think this path to chaos
is prudent regulatory behavior?
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8. Along with Sen. Voinovich, I asked for an analysis of H.R. 2454 with what I believed
were realistic assumptions about the availability of international offsets, the ability to only
construct a modest number of additional new nuclear plants above those that had to be replaced,
and finally the lack of carbon capture and sequestration (CCS) availability. Our request was not
granted. I have no analysis as to what many believe are realistic scenarios for the future. Doubly
troubling is the fact that your S.1733 analysis is believed by your experts to be “close” to the
H.R. 2454 analysis. During this committee’s consideration of the Lieberman-Warner bill, I
received a comprehensive technical analysis after the bill had passed out of committee. I have
some questions regarding your analysis of S. 1 733:
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What scenario did EPA use for its base case for S. 1 733 (or herein after “Chair’s Mark”)?
What sensitivity analyses did you perform on S.1733?
Administrator Jackson Response:
As stated in our analysis of S. 1733 “EPA synthesized the results of a significant volume
of modeling analysis on economy-wide climate policy performed by the Agency. This
effort drew from the nearly 50 modeling scenarios of five bills over the past two years,
with particular focus on the two economic analyses of the Waxman-Markey bill this
year.”
a. Please describe how EPA synthesized the results of various modeling exercises?
Administrator Jackson Response:
EPA assessed how the differences between H.R. 2454 and S. 1733 would likely
impact modeled costs. Many of the differences between the bills had previously been
examined in sensitivity scenarios included in previous EPA analyses. EPA also
presented some of the modeled costs from the core scenario (scenario 2) of EPA’s
analysis of H.R. 2454 for comparison. EPA discussed additional sensitivity cases that
were run for previous bills that would also be applicable for S. 1 733.
b. In modeling the market stability reserve, under which scenario or sensitivity run
did the reserve run out of allowances, and what was the resultant allowance price?
Administrator Jackson Response:
EPA did not explicitly model the market stability reserve. The discussion of the
reserve running out was simply based on the amount of allowances that were initially
placed in the reserve and the amount of allowances that are allowed to be auctioned
from the reserve in each year. This discussion did not require any modeling.
c. Under S.1733, if the Administrator does not determine that sufficient CCS has
been commercially deployed, NSPS is not triggered. Do you model the impact this
may have on the development of new coal fired power plants? Without CCS, what
control technology and at what cost in $/kw do you project to be available?
Administrator Jackson Response:
EPA modeling shows that new conventional coal plants (without CCS) are not built
in the presence of a carbon price, whether CCS is available or not. Thus, EPA has not
specifically analyzed this provision. In the absence of CCS, there are many low-
emitting power technologies that are available to meet emission reduction targets.
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The cost assumptions for these technologies are taken from EIA’s AEO 2009 (April
update). For the coal-fired facilities, emission reduction options (excluding CCS)
include biomass co-firing, plant efficiency improvements, or changes to utilization.
9. Your models are deficit neutral, but since S.1733 is unlikely to pass without being scored
as deficit neutral, did you model the impacts of the Deficit Reduction Fund? What were the
impacts on allowance prices as a result of the smaller number of allowances allocated to utilities?
Administrator Jackson Response:
As stated in our analysis of S. 1 733, “EPA synthesized the results of a significant volume of
modeling analysis on economy-wide climate policy performed by the Agency. This effort drew
from the nearly 50 modeling scenarios of five bills over the past two years, with particular focus
on the two economic analyses of the Waxman-Markey bill this year.” EPA has not included a
scenario that varies the deficit reduction fund in the analyses it has conducted of climate
legislation for the House or in prior Congresses.
10. Table 5 of your discussion lists a number of small or slight increases as well as a slight
decrease in the difference between S. 1733 and H.R. 2454. What are the sum of the increases,
and the result of the sum of the decreases, minus the decrease?
Administrator Jackson Response:
We have not estimated a sum total of the differences between S. 1 733 and H.R. 2454 but are
confident that the economic impacts of S. 1733 are very similar to H.R. 2454.
II. In your discussion of emissions and resulting carbon dioxide concentration increases over
time, what formula, equation or mathematical relationship between emissions, carbon
dioxide concentration, and temperature did you use? What was the source of this
relationship?
Administrator Jackson Response:
As stated in EPA’s October 23 report, the agency evaluated the impact of policies like S. 1733,
combined with actions by other governments, on global C02-equivalent concentration levels and
global average temperature rise. On pages 25-28 of EPA’s October 23 report, we noted that we
used the MiniCAM and MAGICC models to assess global emissions, concentrations, and
temperature rise through 2100. We used a climate sensitivity of 3.0, which was deemed the
"best estimate” by the 1PCC Working Group 1 in their 2007 report.
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12. At what point in time and under what scenario or sensitivity run did the strategic reserve
run out of allowances? What were the consequences for allowance prices and impacts on
consumers?
Administrator Jackson Response:
As stated in our analysis of S. 1 733, “EPA synthesized the results of a significant volume of
modeling analysis on economy-wide climate policy performed by the Agency. This effort drew
from the nearly 50 modeling scenarios of five bills over the past two years, with particular focus
on the two economic analyses of the Waxman-Markey bill this year.” EPA has not run a
scenario or sensitivity run in any of its publically available modeling where the strategic reserve
runs out of allowances.
13. Did you analyze the sensitivity of your model to the case where there were no
international offsets available? If so, please provide your results.
Administrator Jackson Response:
We included a sensitivity of no international offsets in our H.R. 2454 modeling. See Scenario 7,
slide 40 of the H.R. 2454 analysis for the results.
14. Did you analyze the sensitivity of your model where no new nuclear power plants were
constructed? If so, please provide your results.
Administrator Jackson Response:
We included a sensitivity of no new nuclear generation growth beyond the reference case in our
H.R. 2454 modeling. See Scenario 5, Slide 17 of the H.R. 2454 analysis for the results.
15. Did you analyze the sensitivity of your model where CCS does not become commercially
available until 2030, or is never available? If so, please provide your results.
Administrator Jackson Response:
EPA has not included this scenario in the analyses it has conducted of climate legislation in the
House or in prior Congresses. However, EPA’s analysis of S. 2191 included a scenario
constraining nuclear, biomass, and CCS. The results of this scenario are available in our analysis
of S. 2191.
16. Did you analyze the sensitivity of your model to the case where there are no new nuclear
plants being constructed, CCS is not available, and there are no international offsets?
8
Administrator Jackson Response:
EPA has not included this scenario in the analyses it has conducted of climate legislation in the
House or in prior Congresses. However, EPA’s analysis of S. 2 1 9 1 included a scenario
constraining nuclear, biomass, and CCS; and a scenario that did not allow offsets; but did not
include a scenario combining these constraints. The results of this scenario are available in our
analysis of S. 2191.
1 7. Please provide the amount of renewable energy that each scenario and/or sensitivity run
projected to be built. Please break this down by type.
Administrator Jackson Response:
As stated in our analysis of S. 1 733, “EPA synthesized the results of a significant volume of
modeling analysis on economy-wide climate policy performed by the Agency. This effort drew
from the nearly 50 modeling scenarios of five bills over the past two years, with particular focus
on the two economic analyses of the Waxman-Markey bill this year.” In EPA’s analysis of H.R.
2454, the share of renewable electricity in the reference scenario is 6% of generation in 2015, 8%
in 2020, and 10% in 2030. In “scenario 2 - H.R. 2454” the renewable generation share increases
to 8% in 2015, 12% in 2020, and 20% in 2030 (other policy scenarios have similar renewable
shares).
1 8. Please provide your analysis of the impact of carbon dioxide pipeline construction on the
amount of expected CCS use within the series of analyses you performed.
Administrator Jackson Response:
EPA’s analysis does not estimate specific pipeline construction needed for climate legislation.
EPA assumes a cost of $ 1 5/ton of C02 to reflect the costs of building, transporting, and storing
C02 underground.
19. In your discussion of energy efficiency provisions, you stated that S.l 733 would have
energy efficiency impacts of about half those calculated for H.R. 2454. Please provide your
analytical methodology for this estimate and the actual amount of impact.
Administrator Jackson Response:
As discussed in our S. 1 733 assessment, three areas of energy efficiency provisions were
addressed within our analysis of H.R. 2454: building codes, energy efficiency-related allowance
allocations, and the energy savings component of the Combined Efficiency and Renewable
Electricity Standard (CERES). In our analysis of H.R. 2454 (p. 1 8 of 53), EPA indicated that the
impact of these provisions on electricity demand was estimated to grow to 5% of reference case
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demand by 2020 and increase to 5.6% of reference case demand in 2050. Each of the three areas
contributed significantly to this total effect, roughly 1/3 over the entire period through 2050.
In S. 1 733 there is no provision comparable to the CERES provision of H.R. 2454. Also, the
allowance allocations for energy efficiency are lower in S. 1 733 than H.R. 2454, ranging from
approximately 1 1% lower through 2029 to approximately 25% lower in 2040 and later years.
This has a proportional impact on our estimate for the effects of these provisions. In addition,
the absence of an allowance mechanism for addressing non-compliance within the building
codes provision lowers our estimate of the energy savings effects of this provision In total we
estimate the aggregate impact of the energy efficiency provisions in S. 1 733 to be approximately
half of the comparable provisions within H.R. 2454.
20. Table 4 on page 17 of your discussion contains very useful information about H.R. 2454.
Please provide a similar table for S.l 733 and the back-up material.
Administrator Jackson Response:
EPA developed the S. 1 733 analysis based on synthesizing the results of nearly 50 modeling
scenarios of five bills over the past two years. As we noted in the October 23 rd paper, because of
the many similarities between H.R. 2454 and S. 1733 and the relatively small differences
between the two bills, we expect that S. 1 733 would have economic impacts very similar to H.R.
2454, as depicted in Table 4.
2 1 . Does your schedule that is posted on EPA’s website accurately reflect your public
meetings and administration meetings?
Administrator Jackson Response:
My office endeavors to keep the schedule posted on EPA’s website accurate and up-to-date.
22. S. 1 733 and H.R. 2454 will require the EPA to promulgate quite a few new rules and
regulations before the contemplated trading scheme can start in 2012. However, the existing
trading program for pollutants that are actually harmful to public health. Clean Air Interstate
Rule (CAIR), was vacated by the DC Circuit Court of appeals on July 1 1 , 2009 - almost 16
months ago - and still the EPA has failed to issue even a proposed replacement rule. Given
the agency’s historical record regarding the time required to promulgate new rules, is it even
feasible for the agency to promulgate all the necessary regulations for a new cap and trade
scheme before the 2012 start date?
Administrator Jackson Response:
The more appropriate comparison for developing and implementing regulations directed by
legislation is EPA’s experience with Clean Air Act Title IV, which established the Acid Rain
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Program. Congress passed the Clean Air Act amendments that added Title IV in November
1 990; Title IV required EPA to establish a program to reduce the adverse effects of acidic
deposition in part through cap-and-trade. To implement that statutory mandate, EPA codified
the Acid Rain Program requirements in seven regulations. In this case, EPA has already made
substantial progress in establishing a system to collect and verify greenhouse gas emissions
through promulgation of the Greenhouse Gas Mandatory Reporting Rule.
23. The EPA has a record of problems in administering the annual Sulfur Dioxide allowance
auctions. Just last year, the agency initially reported erroneous results regarding the winning
bidders of the annual Sulfur Dioxide allowance auction. Currently, it is contemplated that the
EPA would have authority over both the supply (via allocation, strategic reserve, determination
of new emissions subject to regulation) and demand (through regulations around measurement
and account true up) aspects of the trading scheme. From both an internal control perspective,
and in an effort to better utilize the relative comparative capabilities of the various agencies of
the federal government, would it not make more sense to have the Treasury Department
administer the supply aspects of the scheme (including the auction and strategic reserve fund
management) and leave the demand aspects (measurement, true up, etc) to the EPA?
Administrator Jackson Response:
EPA has a strong record of efficiently administering the Acid Rain program. In addition to
allocating allowances to each generating unit, EPA has conducted small annual, revenue-neutral
allowance auctions since 1993. Auctioned allowances are acquired by the EPA holding back
approximately 2.8% of the allowances issued to each unit. Each unit in turn receives a pro rata
share of the auction proceeds. The Chicago Board of Trade (CBOT) ran the auctions for the first
13 years and then decided not to run them any longer. EPA has successfully run the auctions
since then .
During the 2009 auction EPA inadvertently posted the incorrect 7-Year Advance Auction results
at 12:00 noon on March 24, 2009. The incorrect results were corrected as soon as possible on
the same day and resulted from a typographical error on our part in entering data from a bid form
submitted for the auction. EPA is improving the auction format and will use electronic bidding
in the future, which should preclude data entry errors. EPA has not been using electronic
bidding in auctions of Acid Rain Program allowances because the number of allowances
auctioned and number of bids received (never exceeding about 200 bids) have been relatively
small and manageable, using a manual system.
Ultimately, it is up to Congress to determine who should administer the auction under any future
energy and climate legislation.
24. Both H.R. 2454 and S. 1733 do not give allowances “Property Rights’* legal status, which
would afford holders the same constitutional protections against a taking as all other property.
The concept of not giving allowances property rights legal status is the same concept used under
the existing Title IV allowance trading program implemented as part of the Amendments to the
Clean Air Act of 1990. However, under that program, most allowances (approximately 98%) are
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allocated at no cost to sources. Under the currently contemplated trading scheme, no cost
allocation is quickly phased out over time and in the not too distant future sources will need to
purchase allowances. Why are allowances not given property rights legal status? Isn’t the
program's success contingent on market participants’ confidence in the government’s continued
commitment to the program? Does the lack of property rights impair the value of the allowance
and/or provide sources with a disincentive to use allowances as part of their long term
compliance plan?
Administrator Jackson Response:
Title IV of the existing Clean Air Act, like H.R. 2454 and S. 1733, specifies that allowances are
not property rights. This provision was inserted to ensure that EPA can require additional,
appropriate emission reductions without those actions being deemed “takings” as a matter of
constitutional law.
25. Section 163 would require the EPA Administrator, or other agency head or heads
designated by the President, to promulgate regulations establishing building code energy
efficiency targets by January I, 2014. Does the EPA have the resources and technical
knowledge of residential and commercial energy codes necessary to meet this target date? Is the
EPA prepared to take on the responsibility of establishing national energy efficiency building
codes? Under current law, the DOE is charged with making determinations on national model
energy codes and participates in the development of those codes. How does the EPA view the
requirements of Section 163 interacting with the DOE’s current responsibilities in the
development of national model energy codes?
Administrator Jackson Response:
Section 163 of S. 1733 is similar to Waxman-Markey Title II, Subtitle A, Section 163, which
directs EPA to establish building code energy efficiency targets for the national average
percentage improvement of buildings' energy performance. A key difference between the S.
1 733 and Waxman-Markey provisions is that the S. 1733 provisions direct EPA or such other
agency head or heads as the President designates, to develop building code energy efficiency
targets in consultation with NIST. In contrast, the Waxman-Markey provisions direct DOE to
establish building energy codes.
EPA will take on the responsibilities it is assigned in any enacted statute. Both EPA and DOE
have experience and expertise in advancing energy efficiency measures for buildings and
promoting the adoption of building codes (currently building codes are established in a voluntary
consensus-based process). I am confident that EPA and DOE would work together to implement
effectively any responsibilities assigned to the respective agencies by statute. Both agencies also
would consult with NIST, which works closely with standards code organizations to develop
roadmaps and the standards that industry accepts through the voluntary consensus process.
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26. Administrator Jackson, at the hearing today, you outlined three principles with regard to
preemption of the federal Clean Air Act (CAA), suggesting that not all of the provisions of the
Act should be preempted if comprehensive climate change legislation is enacted. Please provide
a comprehensive list of those provisions of the CAA that you believe should be preempted in
legislation such as S. 1 733 and HR 2454 and those provisions that you believe should not be
preempted.
Administrator Jackson Response:
1 currently do not have a comprehensive list in mind. EPA has begun to take action under CAA
Title 11 to set vehicle greenhouse gas standards, and both H.R. 2454 and S. 1 733 call for EPA to
set standards under existing Title II authorities for other types of transportation sources. It will
be important to consider each Clean Air Act tool in turn in deciding whether and how these tools
can make a useful and efficient contribution to greenhouse gas reductions in the context of
climate change programs being crafted by Congress. Having said this, the President has made
clear that the problem of climate change is best addressed through comprehensive energy and
climate legislation, and he strongly supports passage of such a bill. I look forward to working
with the Committee on these issues.
27. Do you support full preemption of other federal statutes, such as the Clean Water Act and
the Endangered Species Act with regard to the potential regulation of GHG emissions due to the
potential impacts on species and water quality from changes in climate, ocean acidification and
coral bleaching?
Administrator Jackson Response:
1 currently do not have a position on that issue. 1 understand the importance of considering the
ongoing role of these statutes as Congress considers comprehensive climate change legislation,
and would welcome discussing the issue with the Committee.
28. HR 2454 proposes to preempt several provisions of the CAA, including part C of title I,
section 112, section 108, section 1 15, and Title V. On balance, these provision should reduce the
cost of HR 2454 compared to S 1733. Please provide an estimate of the regulatory costs of
proceeding with these CAA programs if no legislation is enacted. Please explain how the
inclusion of provisions preempting these sections of the CAA would affect the overall cost of the
legislation.
Administrator Jackson Response:
The regulatory cost of proceeding under the Clean Air Act authorities you reference would
depend, among other things, on the particular provisions of any specific rules EPA issued
pursuant to those authorities. EPA has proposed a rule under part C of title 1 and Title V to focus
the permit programs those provisions establish on the largest sources of greenhouse gases. We
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provided an economic analysis of the proposed rule in the draft regulatory impact statement
accompanying the proposal. Since there are no EPA proposals under the other authorities you
cite, we have not developed information concerning the possible regulatory costs of such
programs.
29. Both HR 2454 or S 1733 propose to require oil refiners to purchase allowances for all
GHG emitted at the refinery during production as well as all GHG emitted from combusting the
fuel in vehicles. This will raise the cost of gasoline and diesel fuel. Neither HR 2454 nor S 1766
proposes to preempt preemption section 2 1 1 (c) of the CAA that provides EPA with authority to
regulate fuels. Please tell the Committee why the price signal created from the increased cost of
fuel and the inclusion of GHG emissions from the combustion and process of fuel under the
economy wide cap is not sufficient in of itself to force changes in the production and
consumption of fuel in the most cost-effective manner possible.
Administrator Jackson Response:
EPA’s recent analysis has shown that refiners' obligation under the cap would raise gasoline
prices $0.25 in 2030 and $0.69 in 2050(in real 2005 dollars) — increases smaller than the
fluctuations in gasoline prices seen in recent years. This small, indirect price signal on
transportation fuel from the cap alone may not achieve a large-scale transformation in the
transportation system. Complementary policies, such as the proposed GHG rule for passenger
vehicles, give greater impetus to ensure ongoing development of technological innovations for
new vehicles, lower carbon fuels, improvements to the existing fleet, and VMT reductions. The
benefits of such an approach go beyond climate change mitigation and offer energy security
benefits as well
30. On September 15, 2009 EPA signed a proposal to reduce GHG emissions from motor
vehicles under section 202 of the CAA. On October 27, 2009, EPA proposed a "Tailoring Rule”
in an attempt to limit the impact of the final mobile source rule (based on EPA's interpretation)
on triggering stationary source requirements for 40,000 sources under the PSD preconstruction
permit program and 6 million sources under the title V permit program. In the proposed 202
rule, EPA omitted any full discussion of the potential stationary source regulations that will
occur when the rule is finalized. Similarly, in the proposed Tailoring Rule, EPA notes that the
rule “does not impose economic burdens” and should be viewed “as regulatory relief for smaller
GHG emission sources when the light-duty vehicle rule is promulgated.”
a. Given EPA’s view that the final section 202 motor vehicle rule will impose
significant if not unworkable economic burdens on millions of stationary sources,
why did EPA fail to present a full accounting of these stationary source impacts in the
proposed light-duty motor vehicle rule when the Agency believes that the rule will
automatically trigger these requirements?
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Administrator Jackson Response:
In the notice of the proposed vehicle rule, EPA included all of the analysis that the Clean
Air Act and Executive Orders direct EPA to include in such a proposal. EPA will
carefully review all of the public comments it receives in response to the proposal.
b. Why did EPA fail to conduct a regulatory flexibility analysis as required under
the Regulatory Flexibility Act knowing that a final rule would affect millions of
smaller sources?
Administrator Jackson Response:
EPA addressed the requirements of the Regulatory Flexibility Act (RFA) with respect to
the proposed section 202 rule in the preamble of the proposal. For the reasons stated
there, the Agency concluded that no additional RFA analysis was needed.
In the 202 proposal, EPA also acknowledged that small entities might have concerns
about the potential impacts of the statutory imposition of Prevention of Significant
Deterioration (PSD) permit requirements that might occur given EPA’s various GHG
rulemaking efforts. As the potential burdens of such stationary source regulation are
being addressed in the tailoring rule proposal, EPA explained that it was “using the
discretion afforded to it under section 609(c) of the RFA to consult with OMB and SBA,
with input from outreach to small entities, regarding the potential impacts of PSD
regulatory requirements that might occur as EPA considers regulations of GFIGs’' as part
of the tailoring rule package. EPA will continue to assess any potential PSD impacts on
small entities as we consider comments from the various rulemaking packages and
conduct our outreach.
c. Similarly, why did EPA fail to include the impacts on stationary sources when it
submitted its benefit cost analysis required under Executive Order 12866?
Administrator Jackson Response:
EPA has taken the steps that Executive Order 12866 requires EPA to have taken by this
point. For the proposed tailoring rule, EPA completed a regulatory impact analysis (RIA)
that estimates the cost savings to sources and permitting authorities that would be
achieved by the rule. The public has the opportunity to comment on this analysis along
with the proposed rule itself, and we will carefully consider the comments we receive.
d. How can sources meaningfully participate and comment on impending regulatory
requirements without the inclusion of a full analysis of the likely burdens and the
underlying statutory and regulatory authorities triggering those requirements?
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Administrator Jackson Response:
As noted above, the public has an opportunity to review and comment on the RIA that we
prepared for the proposed tailoring rule. More generally, EPA has and will continue to
provide potentially affected sources with an opportunity to comment on any rulemaking
that EPA proposes, including outreach to small entities coordinated in consultation with
SBA.
e. Given this gap and the likelihood that millions of sources will be impacted
without ever having been afforded an opportunity to comment on a full analysis of the
burden in the context of the rulemaking imposes this burden, shouldn’t EPA
withdraw the 202 proposal and reissue it with a full analysis of expected impacts as
required by law.
Administrator Jackson Response:
I do not believe that EPA should withdraw the proposed section 202 proposal. The
proposed tailoring rule addresses how sources might be impacted and provides the public
with an opportunity to comment on focusing the application of the Clean Air Act
permitting programs with respect to greenhouse gases on the largest sources of those
pollutants. EPA will review and carefully consider any public comments filed on the
proposals.
31. What portion of the proposed GHG emission reductions from the combined DOT and
EPA rules would the EPA proposed section 202 produce compared to the reductions anticipated
under the DOT rule?
Administrator Jackson Response:
For several reasons, the estimates of benefits and costs presented by EPA and NHTSA, while
consistent, are not directly comparable and should not be expected to be identical. However, the
CAA standards provide significant additional C02 benefits. EPA estimates that the proposed
GHG standards will result in a reduction of 947 million metric tons of C02 from the 2012-2016
vehicles over their lifetime. DOT has estimated that the CAFE program alone will result in a
reduction of 639 million metric tons of C02.
a. Could EPA realize some of the expected GHG emission reductions from HFC
control through Title VI authorities rather than section 202?
Administrator Jackson Response:
EPA views this proposed rule as complementing the Title VI programs, and not
conflicting or overlapping with them. To the extent that manufacturers choose to
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reduce refrigerant leakage in order to earn air conditioning leakage credits, this would
dovetail with the Title VI section 609 standards which apply to the servicing of motor
vehicle air conditioning systems (MVACs), and to end-of-vehicle life disposal. In
fact, a benefit of the GHG rule’s proposed A/C credit provisions is that there should
be fewer and less impactive maintenance events for MVACs, since there will be less
leakage. EPA also believes the menu of leak control technologies proposed in the
GHG vehicle rule would complement the section 612 requirements (pertaining to
EPA's review of substitutes for ozone depleting substances that reduce the overall
risks to human health and the environment), because these control technologies would
help ensure that R134a or other refrigerants would be used in a manner that further
minimizes potential adverse effects on human health and the environment.
b. Isn’t true that EPA is not under a court deadline to issue the 202 rule and has the
discretion to hold back the section 202 rule and let the DOT rule go forward alone?
Administrator Jackson Response:
Proposal of the section 202 rule is part of EPA’s effort to expeditiously respond to the
Supreme Court’s 2007 decision in Massachusetts v. EPA. We note that the Supreme
Court directly addressed the issue of whether DOT regulations are sufficient to
absolve EPA of its mandate; specifically the court finding stated “ that DOT sets
mileage standards in no way licenses EPA to shirk its environmental responsibilities.
EPA has been charged with protecting the public's “ health " and "welfare, " 42 U. S. C.
§7521(a)(1), a statutory obligation wholly independent of DOT'S mandate to promote
energy efficiency." While EPA is not under a court deadline to issue the GHG vehicle
proposal, the goals of the National Program rely on a joint EPA/NHTSA program.
This joint proposal offers the prospect of important regulatory convergence and
certainty to automobile companies. If EPA were to further delay its proposal, there
could be separate federal and state regimes independently regulating light-duty
vehicles to reduce fuel consumption and GHG emissions; NHTSA’s CAFE
standards, and the GHG standards applicable in California and other states adopting
the California standards. This joint proposal would allow automakers to meet both
the NHTSA and EPA requirements with a single national fleet, greatly simplifying
the industry's technology, investment and compliance strategies. Many of the world’s
largest auto companies have stated their support for this joint proposal. In addition,
California’s commitment to defer to the federal program is also conditioned on EPA
adopting GHG standards of this type.
c. Wouldn’t at least a temporary delay in issuing the section 202 rule make sense
given the state of the economy and the significant and immediate impact it is likely to
have on stationary sources, job creation, and the economy? Wouldn’t additional time
make sense given the time needed for Congress to carefully deliberate on
comprehensive GHG legislation?
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Administrator Jackson Response:
Our response to your concerns about stationary source regulation is provided in
answer to question 30 above. The benefits of the proposed section 202 rule are
substantial. The proposed National Program would result in approximately 950
million metric tons of total carbon dioxide equivalent emissions reductions and
approximately 1.8 billion barrels of oil savings over the lifetime of vehicles sold in
model years 2012 through 2016. In total, the combined EPA and NHTSA 2012-2016
standards would reduce GHG emissions from the U.S. light-duty fleet by
approximately 21 percent by 2030. The estimated benefits of the proposed National
Program would total about $250 billion (at a 3% discount rate). In addition, the joint
GHG/CAFE proposal has significant economic benefits for American consumers.
Consumers would save more than $3,000 as a result of fuel savings over the lifetime
of a model year 2016 vehicle. Finally, EPA believes that the proposed GFIG vehicle
standards would complement comprehensive climate legislation.
32. Many companies producing products have had to shut down facilities and
production lines given the economic recession and the reduced demand. If at some later
point, the economy recovers and these sources decide to restart production two years after
stopping, would they trigger PSD if GHG emission levels increase above the proposed
significance levels? If so, would these sources then have to wait 1 8 months if not longer to
receive a permit and install BACT before beginning operation?
Administrator Jackson Response:
EPA has policies in place to handle these sorts of situations. These evaluations are done
based on the individual circumstances of each case.
33. In issuing the proposed Tailoring Rule, EPA relies on the legal argument of
administrative necessity in circumventing the statutory thresholds of 1 00 and 250 tons
depending on source category.
a. What other agencies inside the Administration reviewed this legal theory? Please
provide copies of their comments.
Administrator Jackson Response:
EPA has not proposed to circumvent any statutory requirements. As I stated
earlier, I believe the proposed rule is legally sound. The proposed rule was
subject to the interagency review process, so numerous agencies had an
opportunity to review the rule, including its legal basis. As required by the Clean
Air Act, EPA has included in the public docket for the proposed rule the
comments submitted by other agencies during the interagency review process.
The link to the electronic docket is
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http://www.regulations.gOv/search/Regs/home.html#home . When the page opens,
please enter in the 'Enter Key Word" box docket # EPA-HQ-OAR-2009-0517.
b. Based on prior NSR rulemakings and legal precedents, if the Tailoring Rule is
vacated, would the 100/250 ton statutory thresholds be retroactively applicable?
Would a significance level of zero emission increase be retroactively applicable
for modifications as well if the Tailoring Rule is vacated? Does this mean that
any modification at facilities with a potential to emit of 1 00 or 250 tons would
trigger PSD and BACT if it causes a net increase in GHG emissions?
Administrator Jackson Response:
While there is caselaw that suggests vacaturs can apply retroactively, a court may
decide not to vacate a rule, and instead to remand it, in light of the potential
impacts. In that case, the rule would remain on the books until revised.
Moreover, in certain circumstances, even when vacating a rule, the court may
retain the ability to fashion equitable relief, so that the vacatur would not apply
retroactively. EPA believes that a reviewing court would find the tailoring rule, if
adopted, legally sufficient, and that if the court held to the contrary, it would not
find those numerical thresholds retroactively applicable in that situation.
34. Earlier this month, the press reported that Judge David Tatel of the U.S. Circuit Court of
Appeals for the District of Columbia warned agencies that fail to follow federal statutes. He is
quoted in the press as saying: "It looks for all the world like agencies choose their policy first
and then later seek to defend its legality This gets it entirely backwards It's backwards
because whether or not agencies value neutral principles of administrative law, courts do, and
they will strike down agency action that violates those principles - whatever the president's
party, however popular the administration, and no matter how advisable the initiative." Do the
Judge’s comments and the sentiments expressed in those comments have any bearing on EPA’s
proposed legal argument with regard to the proposed Tailoring Rule?
Administrator Jackson Response:
The D.C. Circuit’s decisions on EPA interpretation of the Clean Air Act obviously have a
bearing on EPA’s interpretation of the Clean Air Act regarding any rule that EPA issues under
that statute. Presumably, Judge Tatel’s remarks reflect cases in which he served on the judicial
panel reviewing final EPA actions under the Clean Air Act. 1 am not aware that Judge Tatel has
yet served on a judicial panel that has issued a decision on a final agency action that EPA has
taken under the Clean Air Act during the current Administration.
a. If, as some suggest, reliance on the doctrine of Administrative Necessity is legally
precarious given the emission threshold that are written in the statute, isn’t EPA
needlessly placing millions of small businesses at economic risk (for costly controls
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and permit delays) by issuing a final section 202 rule when it has the discretion to
wait?
Administrator Jackson Response:
1 believe the proposed tailoring rule is legally sound. As explained in the preamble to
the proposed rule, its legal foundation relies on two lines of cases, the absurd results
cases and the administrative necessity cases. Both lines of cases include precedents
by the D.C. Circuit. See 74 Fed. Reg. at 55,306 (absurd results caselaw), at 55,316
(administrative necessity caselaw). As a result, we do not believe that we are placing
small businesses at risk.
35. Concerning your June 2009 analysis of the Waxman-Markey Bill, please answer the
following:
a. Why does your data annex file (“HR.2454 EPA Data Annex - ADAGE & IGEM
v.2. 3.xls”) not include figures from all 7 scenarios?
Administrator Jackson Response:
The data annex file “HR.2454 EPA Data Annex - ADAGE & IGEM v.2.3.xls” does
include data from all 7 scenarios. It should be noted that the two models, ADAGE
and IGEM, were not each run for each of the 7 scenarios. Data is provided from the
ADAGE model for scenarios 1, 2, 3, 4, 5 and 6. Data is provided from the IGEM
model for scenarios 1 , 2, and 7.
b. Please provide figures for 1) electricity price, 2) gasoline price and 3) natural gas
price under the reference and policy case scenarios (including scenario #7) for the
years in the range of the program.
Administrator Jackson Response:
The data annex file “HR.2454 EPA Data Annex - ADAGE & IGEM v.2. 3.xls” all
relevant energy price information from the ADAGE model for scenarios 1 - 6.
Scenario 7 was only run in the IGEM model, which does not produce this specific
energy price information.
c. Please elaborate on why you include the net present value calculation for
consumption loses (p. 13).
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Administrator Jackson Response:
The net present value calculation for consumption losses is one of several different
ways we present consumption loss impacts. The net present value consumption loss
calculation is comparable to the net present value consumption loss calculation
presented in MIT's analyses of climate policy.
d. Please respond with consumption losses for all scenarios, including scenario 7, in
net present value and straight consumption loss per Household.
Administrator Jackson Response:
This information is presented on slide 62 of the appendix to EPA’s analysis of H.R.
2454.
e. You report says the "average annual NPV cost per Household” is $80-$ 1 11, (p.
13) Does this figure represent how much money would need to be put aside today
to meet an average year's obligation? If so, is it far to say a household would
have to put aside $80 to $1 1 1 for each year of the program today in order to make
up for consumption loses over the duration of the program?
Administrator Jackson Response:
The net present value of the consumption loss in a future period calculates the
consumption loss today that would be equivalent to the consumption loss estimated
for a future period. For example, as shown in table 4 of EPA’s analysis of S. 1733, in
2020 H.R. 2454 would result in a consumption loss of $0.23 - $0.29 per day. The net
present value of this loss in 2020 would be $0.13 - $0.16 per day. This means that a
household would be indifferent between a consumption loss of $0.29 that happens in
2020 and a consumption loss of $0.16 that happens today.
f. Can you create a new '‘Consumption” slide that includes all scenarios, including
scenario 7? (See p. 13 of your Waxman-Markey analysis.)
Administrator Jackson Response:
This information is presented on slide 62 of the appendix to EPA’s analysis of H.R.
2454.
Senator George V. Voinovich
1 . I have been working with you and your agency, to ensure that your analyses of these
climate bills includes cases that provide a look at possible costs associated with this bill -
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particularly if assumptions about technology adoption aren’t as rosy and optimistic as some
would hope. Given that the EPA has not yet performed this analysis, how is it possible to believe
that “a postage stamp a day” is the true cost of implementing this legislation?
Administrator Jackson Response:
EPA stands behind the methodologies and assumptions that the agency uses in order to model
the economic impacts of energy and climate policies. EPA has always been and will remain
transparent about the methodologies and assumptions that the agency uses. In particular, we
examined the core features of both the House and Senate bills and found that the per-household
costs were likely to be similar (about 30 cents a day) because of the close similarities in the core
features of the bills. In addition, we examined alternative scenarios in our analyses that vary
assumptions about technology adoption and acknowledge that the consumption impacts would
be different (e.g., if there was no nuclear generation growth or no international offsets).
2. The EPA’s base analysis of the Waxman-Markey Climate Bill assumes a 150% increase
in nuclear generating capacity by 2050. That’s equivalent to bringing online about 150 new
nuclear plants in the next 40 years. For someone who has been saying that “we can’t get there
from here without nuclear”, I couldn’t be happier to hear that. However, I have a problem with
that assumption. Given the current constraints in capital financing, licensing, manufacturing, and
skilled work force for engineering and construction, 1 believe bringing 1 50 new nuclear plants
online in the next 40 years is simply unrealistic. Additionally, your analysis shows 25 Gigawatts
of CCS online by 2020, and a tenfold increase in biomass generation by 2050. So, could you
please discuss the level of optimism you have in terms of actually seeing this level of adoption
for these technologies? Have you had these assumptions peer-reviewed by other knowledgeable
people at other government agencies or private industries? Aren’t there a host of environmental
problems that would only be aggravated by a tenfold increase in biomass generation?
Administrator Jackson Response:
EPA’s analysis of H.R. 2454 does not assume a 150-percent increase in nuclear generating
capacity by 2050. Rather, EPA’s analysis of H.R. 2454 projects a 1 50-percent increase in
nuclear generating capacity by 2050, in response to the policies in H.R. 2454. In the longer term,
we believe that nuclear power will be a cost-competitive source of emissions-free electricity
under a cap and trade system. The 150-percent increase in nuclear generating capacity by 2050
is a restriction on the amount of new nuclear capacity that the model is allowed to build. These
restrictions are designed to reflect the technical and political feasibility of building new nuclear
power plants.
The assumed limitations on new nuclear capacity reflect the U.S. Climate Change Science
Program Synthesis and Assessment Product 2. la (MiniCAM Level 1 Scenario), and the EPRI
analysis “The Power to Reduce CO 2 Emissions: The Full Portfolio” (August 2007). When it
comes to the nuclear industry, EPA uses the assumptions about the costs of nuclear power used
by the Energy Information Administration. All of the assumptions that EPA uses have been
through repeated rounds of inter-agency review. The non-governmental peer review that EPA’s
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methodologies and assumptions have been through is described in slides 16 - 1 8 of the appendix
to EPA’s analysis of H.R. 2454.
EPA recognizes that the actual degree of future expansion of any of the electricity-generating
technologies in question depends not just on the economic incentives created by a policy such as
H.R. 2454 or S. 1 733, but also on the presence or absence of constraints and incentives beyond
the policy itself (administrative, political, etc.) that EPA’s computer models are not designed to
detect. For that reason, EPA’s computer-modeling efforts include running the policy in question
through the models under assumptions that the technologies in question do not deploy as much
as would otherwise occur, irrespective of the economic incentives created by the policy under
analysis. In that regard, my staff has made an offer to yours regarding additional scenarios with
additional pessimistic assumptions that EPA could include in any future computer-modeling
analysis of policies such as H.R. 2454 and S. 1733.
Senator David Vitter
1 . Administrator Jackson, I want to thank you for your candor in answering my letter of July
15. As you said in your response EPA has no analysis of the plausible emissions
scenarios for the G-5 developing countries and Russia. Neither do you have the global
C02 equivalent concentration scenarios necessary to evaluate the impact of S 1733.
Based on your comments I have approached Dr. Leon Clarke with the Joint Global Change
Research Institute to see whether he had any data available from his studies. He seems to
have the same problem responding that the Department of Energy has.
My request is that you provide detailed modeling of the plausible scenarios of emissions
based on the cases I outlined in my letter of July 1 5 so that we have this information before
we mark up this bill. This analysis should conform to the July 2013 requirements stipulated
in Section 705. Can you ensure this modeling is prepared and submitted to Congress in a
timely manner?
“SEC. 705. REVIEW AND PROGRAM RECOMMENDATIONS, “(a) IN
GENERAL. — The Administrator shall, in consultation with appropriate Federal agencies,
submit to Congress a report not later than July 1, 2013, and every 4 years thereafter, that
includes —
Page 436
“(2) whether United States actions, taking into account international actions, commitments,
and trends, and considering the range of plausible emissions scenarios, are sufficient to
avoid — “(A) atmospheric greenhouse gas concentrations above 450 parts per million carbon
dioxide equivalent; “(B) global average surface temperature 3.6 degrees Fahrenheit (2
degrees Celsius) above the pre-industrial average, or such other temperature thresholds as the
Administrator deems appropriate; and “(C) other temperature or greenhouse gas thresholds
identified pursuant to subsection (c)(6)(B).
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Administrator Jackson Response:
As stated in EPA’s October 23 report, the agency does have a basis for evaluating the impact
of policies like S. 1733, combined with actions by other governments, on global CO 2 -
equivalent concentration levels and global average temperature rise. Please see pages 25-28
of EPA’s October 23 report.
2, I assume that you have read the bill. Section 707 suggests that by July 1, 2015 the
President will direct all agencies to take additional actions to reduce emissions.
What additional actions could EPA take to further reduce emissions and under what
authority?
Administrator Jackson Response:
It is premature to describe exactly what additional actions EPA may take until such an
analysis is conducted. However, we note that EPA has had successes achieving emissions
reductions through voluntary programs that could be applied to uncapped sources.
Wouldn 7 EPA have the authority to void any of the emissions credits under this provision ?
Page 422
“SEC. 707. PRESIDENTIAL RESPONSE AND RECOMMENDATIONS.
“Not later than July 1, 2015, and every 4 years thereafter — “(1) the President shall direct
relevant Federal agencies to use existing statutory authority to take appropriate actions
identified in the reports submitted under sections 705 and 706 and to address any shortfalls
identified in such reports;
Administrator Jackson Response:
No, that is not our interpretation. Section 707 refers only to use of existing authorities.
Nothing in the language of section 707 establishes authority to void emission credits.
3. Section 744 indicates that EPA will allow' international offsets only from countries that .
comply with certain guidelines. If a country has not taken on legally binding and
verifiable commitments, then it appears that the offsets will be disallowed. If China and
India have not entered into such agreements, 1 assume that any offsets from those
countries would not be available. What assumptions did EPA make about offsets from
specific countries in its analysis ofSl 733/HR 2434?
Sec 744 International Offset Credits. Page 564 (2) REQUIREMENTS FOR
INTERNATIONAL OFFSET CREDITS. — The Administrator may issue international offset
credits only if — “(A) the United States is a party to a bilateral or multilateral agreement or
arrangement that includes the country in which the project or measure achieving the relevant
greenhouse gas emission reduction or avoidance, or greenhouse gas sequestration, has
occurred; “(B) such country is a developing country;
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Administrator Jackson Response:
Pages 8 and 9 of EPA's S. 1733 analysis describe the construction of the international offset
marginal abatement cost curves used in EPA’s analysis of H.R. 2454. These assumptions are
further detailed in the EPA’s March 26, 2007 memo to EIA, “EPA S.280 mitigation cost
schedules for capped sectors and domestic and international offsets,” which is available as
part of the data annexes of all of EPA’s analyses of legislative climate proposals. EPA made
differing assumptions about which sources are eligible to provide abatement to the
international market depending on whether or not it was from a country with a binding cap
on emissions. EPA did not make any assumptions about specific bilateral or multilateral
agreements. Pages 20-21 of EPA’s analysis of S. 1733 discuss the important sensitivities
on international offset availability that have been run by EPA and others.
4. Administrator, on October 1 3th, 1 wrote to request the results of your continuing Section
321(a) evaluation of potential loss or shifts of employment which may result from the
suite of regulations EPA has proposed or finalized that address greenhouse gases under
provisions of the Clean Air Act, including threatened plant closures or reductions in
employment that may result from the administration or enforcement of such regulations.
As you know, Section 321(a) of the Act (42 U.S.C. § 7621(a)) states:
Continuous evaluation of potential loss or shifts of employment. The Administrator shall
conduct continuing evaluations of potential loss or shifts of employment which may result
from the administration or enforcement of the provision of this chapter and applicable
implementation plans, including, where appropriate, investigating threatened plant closures
or reductions in employment allegedly resulting from such administration or enforcement.
I was wondering if you might tell me the status of your analysis per my request?
Administrator Jackson Response:
On October 26, 2009, EPA transmitted to your office the agency’s response to your letter of
October 13.
Senator John Barrasso
1. CBO Director Dr. Elmendorf stated that if we enacted this energy tax the fossil fuel
sector would mirror the massive job losses experienced by the manufacturing industry
since the 1970s.
a. What part of the Boxer-Kerry bill do you believe avoids turning fossil fuel
dependent communities of the West, Midwest and South from becoming the rust
belt of the 2 1 rst Century?
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Administrator Jackson Response:
I do not believe that CBO Director Elmendorf s testimony included the statement that
you attribute to him. 1 do read Director Elmendorf s testimony to make two points. First,
over time, legislation like S. 1 733 would shift a significant amount of US jobs from high-
emitting industries - such as oil refineries and conventional coal-fired power plants - to
low-emitting industries - such as cellulosic biorefineries and advanced coal plants with
carbon capture and sequestration. This Administration does want to make clean energy
the profitable kind of energy in this country. We want to promote US industry and jobs
over the long term by putting those industries at the forefront of the burgeoning global
marketplace in clean-energy technologies.
Director Elmendorf s second point was that if the shift occurs too abruptly, then high-
emitting industries and their employees might not have enough time to adjust. That is the
point the behind an emissions cap that starts now, at a modest level, and then declines
smoothly and gradually over time. If we waited much longer to start, then the transition
would be abrupt. We need to start now, so that the transition need not be abrupt.
Preventing an abrupt transition could also be a rationale for some of the transitional free
allowances - such as for energy-intensive industries, coal-fired utilities, and the like -
that you see in S. 1733.
1 believe that S. 1733 and H.R. 2454 have been crafted to avoid the negative outcome that
you describe.
2. Do you believe it makes sense for Washington to pass a cap and trade bill to make
everything American’s buy more expensive, and increase energy costs for low and
middle income folks, and then devise a government bureaucratic “food stamp” like
system to monthly compensate these households for the higher costs that were imposed
upon them?
Administrator Jackson Response:
Analyses of S. 1733 indicate that costs are modest. However, its important not to lose
sight of the fact that the bill would create, for the first time, a system of incentives to
make clean energy the profitable kind of energy. Furthermore, what the analysis does not
provide is the economic losses that may be avoided by reducing the risk that we will
experience the most catastrophic impacts of climate change.
Senator Lamar Alexander
1 . I have looked through the EPA produced document entitled “Economic Impacts of S.
1 733: The Clean Energy Jobs and American Power Act of 2009” that was released to the
public last Friday evening.
a. Can you tell me the number of jobs created or lost by this bill? Does this include
information on which sectors or industries will gain or lose jobs due to this bill?
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Administrator Jackson Response:
EPA’s economic computer models are not designed to project precise numbers of jobs
gained or lost, either in the aggregate or in particular industries. Data and model
limitations make it very difficult to estimate any labor market changes that might occur
with any degree of accuracy. This is especially true considering that labor markets are
primarily influenced by factors including routine business cycles, changes in production
technology, and the state of the economy overall. No modeled job-related outputs appear
in any of the computer-modeling reports that EPA provided on the Lieberman- Warner
bill, the Bingaman-Spectcr bill, or the Waxman-Markey bill. Therefore EPA’s October
23 analysis does not describe any such outputs.
b. What is the effect of the bill on the nation’s GDP?
Administrator Jackson Response:
GDP would continue to grow' if S. 1733 were enacted. EPA’s computer models actually
overestimate the negative impact on US GDP growth of a policy such as S. 1733, because
the models are not designed to project and reflect the beneficial impacts on GDP growth
of avoiding catastrophic climate change. Even with that being the case, the models
project that the rate at which US GDP would grow under a policy like S. 1733 would be
imperceptibly slower than in the absence of the policy. Indeed, the difference in the
projected growth rate is so small as to fall well within the historical margin of error in
GDP growth projections.
c. What is the effect on the price of gasoline and diesel fuel?
Administrator Jackson Response:
EPA's computer models project that each dollar in the price of an emission allowance
would cause the price of a gallon of gasoline or diesel to be approximately one cent
higher than in the absence of the program, all else being equal.
2. The document states that the impacts of this bill would be “similar” to those estimated for
the House-passed Waxman-Markey climate change bill. What exactly does that mean
with reference to the costs to the average American family?
Administrator Jackson Response:
ft means that the cost to consumption of the average American household would start out
at just a few cents a day and would be up to only about 30 cents a day by 2020.
3. What docs this document say about the mix of electricity sources we are likely to have in
2020, 2030, and 2050? How many new nuclear plants will be built? How many new
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Administrator Jackson Response:
The analysis that EPA completed on October 23 indicates that the projections that EPA
made for H.R. 2454 are applicable to S. 1 733 as well. In short, the projections are that
for each of the following electricity sources - nuclear power, wind power, solar power,
and coal with carbon capture and sequestration - the percentage of total U.S. electricity
generated by that source by 2020, by 2030, and by 2050 would be higher in the presence
of a policy like H.R. 2454 and S. 1733 than in the absence of one. The percentage also
gets larger with time (i.e., the percentage is larger in 2030 than in 2020 and much larger
in 2050 than in 2030). The opposite is the case with respect to natural gas by the last two
decades of the program.
4. If the EPA’s best efforts to quantify the effect of this proposed legislation as the title of
this document clearly implies... “Economic Impacts of S. 1733: The Clean Energy Jobs
and American Power Act of 2009” can’t actually answer any of these questions then what
other analysis is required to find these answers? Is further analysis from the EPA
required? What other experts, such as the CBO, would you recommend we consult?
Administrator Jackson Response:
As noted in the responses above, the analysis that EPA completed on October 23 does
provide answers to questions you have posed. EPA developed the S.1733 analysis based
on synthesizing the results of nearly 50 modeling scenarios of five bills over the past two
years. As we noted in the October 23 ,d paper, because of the many similarities between
H.R. 2454 and S. 1 733 and the relatively small differences between the two bills, we
expect that S. 1733 would have economic impacts very similar to H.R. 2454.
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Senator Boxer. Thank you so much, Administrator Jackson.
And our last witness is Hon. Jon Wellinghoff, Chairman of the
Federal Energy Regulatory Commission. Welcome.
STATEMENT OF HON. JON WELLINGHOFF, CHAIRMAN,
FEDERAL ENERGY REGULATORY COMMISSION
Mr. Wellinghoff. Thank you, Madam Chairwoman Boxer,
Ranking Member Inhofe and members of this committee. Thank
you all for inviting me here today to speak about a very important
subject.
First, I want to commend Chairwoman Boxer and Senator Kerry
for this undertaking and offer the support and assistance of my
agency to further your effort here today.
I would like to submit my prepared testimony for the record and
I will highlight a few points of my testimony.
Senator Boxer. Without objection.
Mr. Wellinghoff. Thank you.
The Federal Energy Regulatory Commission seeks to assist en-
ergy consumers in obtaining reliable, efficient, sustainable energy
services at a reasonable cost through appropriate regulatory and
market means. Toward that end, the Commission is removing bar-
riers to the use of low carbon renewable resources and encouraging
greater efficiency in the electric energy system. These efforts and
the efforts by many States are helping to reduce the emissions pro-
duced by the generation of electricity.
Our Nation, however, has the capability to reduce these emis-
sions much, much more. A major reason why low carbon renewable
resources and energy efficiency are not used more extensively is
that the cost of greenhouse gas emissions is, in economic terms, an
externality. In other words, the effects of these emissions is not re-
flected in the price of energy in the marketplace. S. 1733 would
change the situation by recognizing in the energy marketplace the
effect of greenhouse gases. And I would note that this concept of
internalizing these external costs has bipartisan support at my
Commission.
Renewable resources cannot only help reduce greenhouse gas
emissions but also diversify the fuels used to generate electricity.
Fuel diversity helps stabilize our electric supply against shortages
or price spikes in particular fuel markets. Using domestic energy
instead of foreign energy also strengthens our national security.
This month, I provided the Congress with the Commission’s stra-
tegic plan for the next 5 years. In that document, we committed to
take additional steps to address possible barriers to more extensive
use of renewable energy resources and distributor resources in en-
ergy markets, thus allowing for markets to operate more efficiently,
reduce carbon and reduce costs to consumers.
But a significant expansion of renewable resources in our elec-
tricity supply portfolio will require additional high voltage trans-
mission facilities, network upgrades and feeder lines. I also note
that the inter-regional transmission facilities necessary to deliver
the output of certain renewable resources are unlikely to be con-
structed without additional Federal authority in areas of planning,
citing and cost allocation.
229
Consumer energy use management, also called demand response,
refers to consumers reducing their usage at certain times to im-
prove grid efficiency. In June, at the direction of Congress, the
Commission issued an assessment of the potential for consumer en-
ergy use management both nationally and for each State through
2019. The assessment found that the potential of peak electricity
demand reductions across our country is 188 gigawatts, or up to 20
percent of the national peak demand. These savings, if realized,
can significantly reduce the number of power plants needed to meet
peak demand, and thereby reduce carbon emissions by as much as
1.2 billion tons annually.
As I indicated above, in the Commission’s new strategic plan, we
commit to continue our efforts to identify and eliminate barriers to
participation by demand resources in the Nation’s organized whole-
sale electric markets.
FERC is using its statutory authorities to aggressively eliminate
barriers to renewable resources and distributor resources in whole-
sale electric markets and to encourage greater efficiency in the
electric system and thereby reduce carbon emissions. For such ef-
forts to increase reductions in carbon and improve efficiency, sound
energy policies must get the price in the markets right to achieve
both our environmental and our economic energy policy goals.
S. 1733 is the key to getting it right. I encourage you to pass this
legislation.
Thank you again for the opportunity to testify here today. I will
be happy to answer any questions that you may have.
[The prepared statement of Mr. Wellinghoff follows:]
230
Testimony of Jon Wellinghoff
Chairman, Federal Energy Regulatory Commission
Before the Committee on Environment and Public Works
United States Senate
October 27, 2009
Introduction
Chairman Boxer, Ranking Member Inhofe, and members of the Committee, thank
you for the opportunity to speak here today. My name is Jon Wellinghoff, and I am the
Chairman of the Federal Energy Regulatory Commission (FERC or Commission). My
testimony addresses S. 1733, the Clean Energy Jobs and American Power Act, in the
context of the energy industries. The Commission has regulatory authority over various
aspects of these industries. The Commission seeks to assist energy consumers in
obtaining reliable, efficient, and sustainable energy services at a reasonable cost through
appropriate regulatory and market means.
The Commission has taken various steps to remove barriers to the use of “low
carbon” renewable resources and to encourage greater efficiency in the electricity system.
These efforts, as described below, and the similar efforts of many States are helping to
reduce the emissions produced by the generation of electricity.
Our Nation, however, has the capability to reduce these emissions much more.
For example, studies show a potential to develop hundreds of gigawatts of renewable
energy resources by 2030, if we expand our infrastructure adequately. Similarly, a study
issued this summer indicated that energy efficiency efforts by consumers could reduce
our overall energy usage by nearly 25 percent. Moreover, this study did not consider the
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significant potential for improved efficiency on the utility side of the meter including the
transmission system infrastructure under the Commission’s jurisdiction.
A major reason why “low carbon” renewable resources and energy efficiency are
not used more extensively is that the cost of greenhouse gas emissions is, in economic
terms, an “externality.” In other words, the effect of these emissions is not reflected in
the price of energy in the marketplace.
S. 1733 can change this situation. This legislation is a way to recognize, in the
energy marketplace, the effect of greenhouse gases. Doing so will encourage more
energy efficiency and use of “low carbon” renewable resources, allowing us to reduce our
greenhouse gas emissions while maintaining our quality of life. We have extensive
amounts of untapped renewable resources and large potential to use energy more
efficiently. S. 1733 will remove a major impediment to using those tools to this end.
Renewable Resources
Renewable resources can not only help reduce greenhouse gas emissions, but also
diversify the fuels used to generate electricity. Fuel diversity helps stabilize our
electricity supply against shortages or price spikes in particular fuel markets. Using
domestic energy instead of foreign energy also strengthens our national security and
reduces our economy’s vulnerability to the risk and volatility of imports.
FERC has taken a range of actions to reduce barriers to renewable energy
development and deployment. For example, the Commission has reformed transmission
rates to exempt wind generators and similarly variable resources from certain penalties
for deviating from their scheduled output, since these resources have only limited ability
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to control their output. FERC also recognized that its policy for allocating transmission
interconnection costs can be a barrier to entry by location-constrained resources like
many sources of renewable energy, so we allow variations from our historical policy for
such resources. FERC also has approved incentives and other ratemaking policies to
facilitate the development of transmission facilities needed for renewable resources, such
as facilities to deliver wind power from the upper Midwest to consumers in Chicago and
other cities, and from Montana and Wyoming to consumers in Nevada and other
Southwestern states. In addition, the Commission is supporting efforts by regional
transmission organizations (RTOs) and independent system operators (ISOs) to reduce
their backlog of interconnection requests by planned generation projects, many of which
are wind projects.
This month, I provided Congress with the Commission’s Strategic Plan for
FY2009-2014 and committed to take additional steps to address possible barriers to
development of renewable resources. The Commission set a long-term goal of exploring
and, as appropriate, implementing reforms to allow renewable resources to compete fairly
in FERC-jurisdictional electric markets. These efforts could include, for example,
changes to market rules, or the implementation of operational tools to support reliable
integration of renewable resources. The Commission will seek input from the industry
and the public and will change its regulations, as appropriate, to achieve this goal.
A significant expansion of renewable resources in our electricity supply portfolio
will require additional high-voltage transmission facilities, network upgrades, and feeder
lines. It is highly unlikely that the inter-regional transmission facilities necessary to
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deliver the output of certain renewable resources will be constructed without additional
federal planning, siting, and cost allocation authority.
As to transmission planning, the Commission has adopted rules to improve
transmission planning processes, such as having public utilities open their planning
processes to developers of renewable resources and others. Congress has recognized the
need for additional improvements, authorizing $80 million earlier this year for the
Department of Energy, after consultation with FERC, to facilitate inter-regional planning
efforts. Several other bills have been proposed in Congress this year to encourage or
require inter-regional planning, and this type of legislation would be a step to ensuring
the success of these efforts.
As to transmission siting, I recognize and respect the long-standing role of the
states in performing this function. Nonetheless, under limited and appropriate
circumstances, transmission developers should have recourse to federal siting authority at
the Commission. Such authority would be helpful even if limited to situations in which
states have had an initial opportunity to address a proposal for transmission development
and to transmission facilities that are primarily for moving renewable energy.
Finally, cost allocation is often a threshold consideration in the development of
transmission facilities for delivering renewable energy. Legislation can help clarify the
Commission’s authority to allocate a project’s costs reasonably among all of a project’s
beneficiaries. However, such legislation should avoid including unduly restrictive
language on cost allocation, particularly language that would impose a requirement to
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calculate the precise monetary benefits expected to accrue from a new transmission
facility.
While these efforts on transmission issues are vital, we also should not lose sight
of the critical role of local renewable energy. We must remove barriers to entry for local
renewable resources. Developing and reliably delivering these local resources is
important, but that effort must be made in concert with and not separate from developing
the necessary transmission infrastructure. We need not choose between local and distant
renewable resources; we need them both.
Consumer Energy Use Management
Consumer energy use management, also called demand response, refers to
consumers reducing their usage at certain times that will result in improved grid
efficiency. In June, the Commission issued an assessment of the potential for consumer
energy use management both nationally and for each state, through 201 9. The
assessment found that the potential for peak electricity demand reductions across the
country is 1 88 gigawatts, up to 20 percent of national peak demand. These savings, if
realized, can reduce significantly the number of power plants needed to meet peak
demand and thereby reduce carbon emissions by as much as 1.2 billion tons annually.
In its Strategic Plan for FY2009-2014, FERC commits to continue its efforts to
identify and eliminate barriers to participation by demand resources in RTO and ISO
markets. The Commission also will seek to identify best practices for demand response
products and procedures and, if appropriate, initiate a proceeding to change existing
market rules.
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Smart Grid
Earlier this year, the Commission adopted a policy statement on the smart grid.
The Commission identified several priorities for the development of standards for smart
grid technologies, including standards needed for the integration into the power system of
demand response resources, electricity storage facilities, and electric transportation
systems. The Commission also adopted an “Interim Rate Policy,” specifying the criteria
that “early adopter” utilities must meet to recover their smart grid costs. The Department
of Energy and the National Institute of Standards and Technology (NIST) also have
major roles in the development of the smart grid, and FERC is working closely with those
agencies and with States in collaboratively fostering deployment of smart grid
technology. Later this year, NIST may file a number of proposed smart grid standards
for FERC’s review and adoption. If so, the Commission will solicit public comment and
review the proposed standards expeditiously.
Renewable Portfolio Standard
While S. 1733 does not address Renewable Portfolio Standard (RPS) issues, a
national RPS program is an important adjunct to climate change legislation. Many States
have already adopted RPS requirements, and a properly-structured national RPS can add
to the benefits achieved from the state requirements. A national RPS should be a “floor,”
not a “cap,” on state programs. A national RPS also should encompass not only
renewable resources but also distributed energy resources such as energy efficiency,
consumer energy use management, combined heat and power facilities, and recycled
energy (or waste heat recovery).
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FERC is well-equipped to oversee implementation of a national RPS.
Implementation of a national RPS needs to be coordinated with other energy policies
significantly affecting the ability of renewable resources to obtain transmission services
and make sales into wholesale energy markets. Many of those key policies are within
FERC’s jurisdiction. FERC not only has day-to-day knowledge of the electric industry,
but also has extensive experience in implementing and enforcing regulatory requirements
for electric utilities. If a national RPS is enacted, FERC is the most logical and
appropriate agency to oversee, implement, and enforce such a national standard.
Carbon Market Assurance
Section 131 of S. 1733 focuses on the need for oversight of carbon markets.
Section 131 states the sense of the Congress that there should be a single, integrated
oversight program, and specifies a number of defining principles. Section 131 does not,
however, establish the program or designate an agency to oversee it. 1 defer to Congress
on which agency should oversee such a program, so long as any legislative language
preserves the Commission’s existing jurisdiction, including its exclusive jurisdiction over
transactions pursuant to a FERC-approved tariff of an RTO or ISO. RTOs and ISOs are
regulated comprehensively by FERC, and their services and products are designed to
ensure an adequate supply of electricity at reasonable prices for consumers. The RTOs
and ISOs also are required to have market monitors, and these entities assist the efforts of
FERC staff in detecting and penalizing any manipulation of RTO and ISO markets.
Office of Consumer Advocacy
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Section 151 ofS. 1733 would establish an Office of Consumer Advocacy (OCA).
To ensure its independence from FERC, OCA should be placed within another agency or
created as a separate agency. Similar functions in State government are typically
performed by State Attorneys General or by agencies outside of State Public Utility
Commissions.
Also, section 1 5 1 allows OCA to “investigate independently” the rates and
services of FERC-regulated companies. But, it is unclear why OCA’s role should exceed
the role of others advocating interests in Commission proceedings. Other advocates
generally must request that FERC initiate an investigation, not initiate their own
investigation. Additionally, the authority to independently investigate the same matters
over which FERC has exclusive jurisdiction under the Federal Power Act or Natural Gas
Act could create duplicative proceedings for regulated entities and disrupt ongoing FERC
proceedings and investigations, including rate proceedings and market manipulation
investigations.
Finally, Congress may want to consider funding the Office of Public Participation
identified in section 319 of the Federal Power Act, in lieu of enacting section 151. While
this Office was intended to, among other things, compensate participants in FERC cases
for their litigation costs under certain circumstances, Congress has never funded this
Office. Funding this Office may better fulfill the goals of section 151.
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Conclusion
FERC is using its statutory authorities aggressively to eliminate barriers to
renewable resources and consumer energy use management, and to encourage greater
efficiency in the electricity system. As such, we are using the authority we have to
implement regulations and policies to address greenhouse gas emissions. But those
efforts and the efforts of other Federal and State agencies, while helpful, are not enough
to efficiently stem the growing accumulation of greenhouse gases in our atmosphere. S.
1733 is the key to altering this trend. Congress should enact this legislation now.
Thank you again for the opportunity to testily today. I would be happy to answer
any questions you may have.
239
Responses to October 27. 2009 Questions to Chairman Wellinghoff from
Senator Sheldon Whitehouse
Question No. 1 :
What is FERC's role in the licensing and siting of off-shore Liquefied Natural Gas
facilities, and specifically, what is the suite of considerations FERC examines
when approving a new LNG license application? I am concerned that FERC does
not currently or adequately take into account a broad enough set of risks or
burdens that an LNG facility may pose to a community, such as disruption of
recreational activities and costs incurred by local emergency response teams.
Please describe what FERC is legally required to consider in the licensing and
siting process, and address any legal and resource constraints that may account for
the oversight I have described.
Response :
The Energy Policy Act of 2005 provided FERC with the exclusive authority to
approve or deny an application for the siting, construction, expansion, or operation
of an LNG terminal located onshore or offshore in state waters. LNG terminals
located offshore outside state waters are under the jurisdiction of the Maritime
Administration under the Deepwater Port Act.
As lead Federal agency for the preparation of the environmental impact statement,
FERC analyzes the impact of the entire project, including the proposed LNG
terminal site, the LNG vessel transit to the site, and any related natural gas
pipelines from the site to market areas. This analysis examines all public interest
issues relating to a proposed project, including the impacts on environmental
resources, land use and recreational activities; the safety of the LNG terminal
facilities and vessel transit; and other issues raised throughout the extensive public
scoping and comment process. In addition, the Commission is required to consult
with states regarding the emergency response capabilities near the proposed LNG
facility.
As a cooperating agency, the U.S. Coast Guard reviews a Waterway Suitability
Assessment prepared by the applicant and validates it with port stakeholders to
ensure the safe and secure transit of the LNG vessel to the terminal site. Measures
to minimize the impact on commercial and recreational vessels that use the same
waterway are also addressed. The results of the Coast Guard review are contained
in a Letter of Recommendation to FERC which is subsequently incorporated into
the draft environmental impact statement.
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Regarding local costs for emergency response, the FERC requires LNG terminal
operators to develop an Emergency Response Plan for the LNG terminal in
consultation with the U,S. Coast Guard and state and local agencies. The plan is
then submitted to the Commission for approval by the Commission prior to the
Commission’s granting any final authorization to begin construction. The
Emergency Response Plan must include a Cost-Sharing Plan identifying any direct
cost reimbursements the applicant agrees to provide to state and local agencies
with responsibilities for security and safety of the LNG terminal and vessel transit.
FERC reviews the plan to ensure that the economic burden on the community is
minimized before authorizing construction.
Question No. 2 - Streamlining Multiple Use Permits for Small Dams
A. Rhode Island is home to approximately 600 dams, many of which are vestiges
of Rhode Island's industrial past and are no longer in use. Of these 600 dams,
nearly 100 are thought to be good potential candidates for micro hydro power.
These dams are small, with mean annual water flows ranging from 12 to 791 cubic
feet per second. (As a basis of comparison, over the first four months of 2000,
water flows below the Hoover Dam ranged from 12,000 to 20,000 cubic feet per
second.) Rhode Island has a proud history of harnessing its rivers to power
manufacturing - the Blackstone River was literally the birthplace of the Industrial
Revolution. Some of our cities and towns, such as those that lie along the
Blackstone - Central Falls, Pawtucket, Cumberland, Lincoln, and Woonsocket -
want to use these dams to produce local, low carbon energy.
However, it appears that FERC's one-size-fits all licensing requirements prove very
burdensome for micro hydro projects (turbines with a capacity of 5 megawatts or less).
There is a recognition in the law that there should be some common-sense exemptions
from the usual licensing requirements under the Federal Power Act, such as the
"conduit exemption" (where a hydro project on non-Federal land will use only the
hydroelectric potential of a manmade conduit, which is operated for the distribution of
water for municipal consumption and not primarily for the generation of electricity).
In addition, the Federal Power Act has delegated micro hydro licensing of dams in
Alaska to that state. But currently, if a small dam in Rhode Island wants to install a
5 megawatt turbine, it must undergo the same process as a dam on the scale of the
Hoover Dam. For such a small project, this process is clearly overly complicated
and burdensome. Does FERC current have a process in place or is working to
establish a system to streamline the micro hydro application process for existing
dams?
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Response :
Yes, the Commission issues two types of exemptions: (1) Conduit Exemptions;
and (2) 5-MW Exemptions.
As you point out. Conduit Exemptions are authorized for generating capacities 15
megawatts or less for non-municipal and 40 megawatts or less for a municipal
project. The conduit has to have been constructed primarily for purposes other
than power production and be located entirely on non-federal lands.
In addition to “Conduit Exemptions”, the Commission issues “5-MW
Exemptions” for projects that would have an installed capacity of 5 MW or less
and be located at existing dams or that would utilize a “natural water feature” such
as a stream without the need for a dam and propose to increase capacity.
Section 32 of the Federal Power Act (FPA) provides for the State of Alaska to
assume licensing and regulatory authority over qualifying small hydroelectric
projects (<5 MW) in the state. However, Alaska has not completed drafting the
regulatory program that is a statutory prerequisite to the state beginning to regulate
small hydro projects. It is Commission staff’s impression that the costs and
complexity of establishing a new state regulatory program have been matters of
concern.
Licensing processes at FERC are designed to accommodate non-federal
hydropower projects regardless of size; however, the amount of information that
must be provided and the time to process a specific application are more
dependent upon the project's environmental impacts than its size (installed
capacity). For projects having no or minor environmental impacts, the amount of
information needed is generally less and processing times can be significantly
reduced. Here are some actions we can and have been taking for small projects
having minor environmental impacts:
• Waive one or more pre-filing consultation stages if no objection from
agencies/tribes
• Notify all parties of our intent to waive additional study requests in the
tendering notice.
• Do paper scoping in lieu of a site visit and public meetings
• Forego formal scoping altogether and substitute the consultation that
occurred during pre-filing
• Issue a combined tendering/acceptance/ready for environmental analysis
notice
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• Issue a single Environmental Assessment and address EA comments in the
order
• Waive other parts of the regulations as appropriate
Some examples where we have successfully expedited authorizations are:
• Lower Turnbull Drop Project No. 12597 (5 MW), Upper Turnbull Drop
Project No. 12598 (4.1 MW), and Mill Coulee Drops Project No. 12599
( 1 .05 MW) - licenses issued (07/28/06) 8 months from filing.
• Corriveau Project No. 12629 (350 kW) - exemption issued ( 10/24/06) 10
months from filing.
• City of Afton, Wyoming Culinary Water Project No. 13301 (225 kW) -
license issued (10/09/09) 5 months from filing.
The keys to lessening the regulatory burden in licensing small hydropower
projects are for the applicant to design a project and select a site that do not pose
significant environmental issues, and for the applicant to work with other
stakeholders to (1) establish a consensus that the project is meritorious, (2) reach
agreement that little new environmental study needs to be performed, and (3)
develop agreement as to what environmental measures will be needed. Where
these matters are resolved, the Commission can act on an application quickly. To
the extent that there is disagreement, licensing will take longer.
B. Rhode Islanders also want to make improvements to their dams, to facilitate the
passage of fish and kayaks/canoes. What is FERC's role in overseeing
or permitting these types of improvements? If these are explicit conditions
of a micro hydro project, or if a Rhode Island project wants to incorporate
these improvements, what other federal agencies are involved? Is there a
way to coordinate the review of a multi-use application (to install power,
and make environmental and recreational improvements, on an existing
dam), to make the approval process easier for these smaller projects?
Response :
The Commission has jurisdiction to oversee these types of improvements only
with respect to dams that are included in Commission-licensed hydropower
projects. Where the improvements are proposed at Commission-licensed projects,
the Commission can either require them during the licensing process or, if they are
proposed during the license term, by amending the license.
Depending on the magnitude of the change and its environmental significance, the
licensee could be required to consult with the appropriate Federal and state
agencies. Federal agencies could include the U.S. Fish and Wildlife Service,
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National Marine Fisheries Service, National Oceanic and Atmospheric
Administration, and Corps of Engineers. In Rhode Island, the licensee would also
need to contact the Department of Environmental Management, the Historic
Preservation & Heritage Commission, and Water Resources Board.
During licensing, the Commission examines all public interest aspects of a
proposed project. Thus, when the Commission examines a proposal to develop
hydropower, it simultaneously analyses potential environmental and recreational
enhancements.
C. Finally, would FERC be interested in launching a pilot project for streamlining
micro hydro, with fish and recreational improvements? If so, could you do this
using your existing regulatory authorities or would FERC need expanded statutory
authority?
Response :
As described above in the answer to part A, the FERC is already taking steps
within its authority to streamline the licensing and exemption processes for small
hydro. In addition, FERC will hold a Commissioner-led technical conference on
December 2, 2009, from 1:00 p.m. to 5:00 p.m. Eastern Time in the Commission
Meeting Room at the Federal Energy Regulatory Commission, 888 First Street,
NE, Washington, DC 20426. The purpose of this conference is to explore issues
related to licensing small non-federal hydropower projects in the United States.
Specifically, the participants will discuss the Commission’s program for granting
licenses and exemptions from licensing, including 5-megawatt and conduit
exemptions. The conference will also provide an opportunity for industry, state
and federal agencies, tribes, and other stakeholders to express their views and
suggestions for processing applications for small hydropower projects. After the
Commission reviews the matters discussed at the conference and public comments
received thereafter, the Commission will assess whether further streamlining is
appropriate and can be accomplished within its current regulatory authority.
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Responses to October 27. 2009 Questions to Chairman WeHinghoff from
Senator Tom Udall
Question No. 1:
It is my understanding that most FERC-jurisdictional interstate natural gas
pipelines would be regulated as regulated industrial entities in this legislation, and
therefore would be required to purchase emission allowances and incur other
compliance costs.
Due to FERC rate regulation, interstate pipelines would not be able to unilaterally
adjust the price of their product or service to reflect the cost of compliance.
Instead, these pipelines must seek approval from the FERC to recover such costs
in the rates charged for pipeline transportation service.
Would you agree that traditional rate case proceedings may be ill-suited to
addressing these costs, because such costs are likely to be unpredictable and are
likely to vary from year to year, and given the number of such cases that could be
required?
Instead, would you and the FERC recommend a rate tracker or other mechanism
for these greenhouse gas compliance costs, similar to current rate trackers for fuel
costs?
Response:
Pursuant to the Natural Gas Act (NGA), the Commission must give interstate
natural gas pipelines an opportunity to recover their prudently incurred costs of
providing services subject to the Commission’s jurisdiction, including an
opportunity to earn a reasonable return on their investments. The Commission
ordinarily requires pipelines to file a general rate case under NGA section 4 in
order to recover any cost increases. Such a rate case allows the Commission to
review all the pipeline’s costs and revenues to develop just and reasonable rates.
It may be determined that increases in some types of costs are offset by decreases
in other types of costs. The Commission has also allowed pipelines to file more
limited proposals under section 4 to establish separate rate tracking mechanisms
to recover a particular type of cost, if those costs are more volatile than the
pipeline’s ordinary costs and thus are difficult to predict. For example, a number
of interstate pipeline companies currently recover the costs of fuel through annual
tracking mechanisms. Therefore, under existing law, pipelines may propose to
recover any costs they may incur to comply with the proposed legislation in a
tracking mechanism and the Commission can then consider whether such a
recovery mechanism is just and reasonable.
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There are some potential issues related to rate trackers that may not make them the
best cost recovery option in this instance. First, if the rate tracking mechanism is
crafted so that any costs passed through are presumed to be just and reasonable
and prudent, there would be no opportunity to review the costs. Rather, such a
mechanism essentially would guarantee full recovery of any costs incurred by the
pipeline. Second, absent a revenue true-up mechanism or other revenue pass
through provision, the tracker could become a profit center for the pipeline
because it would be designed to recover costs, but not offset those costs by any
revenues that may be received. Third, a rate tracker mechanism could remove any
incentives for pipelines to seek efficiencies in greenhouse emissions because they
will have a guaranteed full recovery of any costs incurred to purchase such
emission allowances.
The question of whether a rate tracker is an appropriate mechanism is one that the
Commission has addressed in the past. I believe the NGA currently gives FERC
sufficient regulatory flexibility to apply its experience and decide whether a
tracker is a fitting mechanism in this situation and, if so, the proper design of the
tracker to address the issues discussed above. However, if Congress instead
decides to propose a legislative rate tracker solution, such legislation should
include a reasonable opportunity to review the costs flowed through the tracker, as
well as potential revenues, to ensure that the pipelines remain revenue neutral.
This may best be achieved by requiring a periodic review of the pipeline’s overall
rates.
Question No, 2:
It is also my understanding that many pipelines and their customers have
negotiated rates or settlements wherein the pipeline has contractually agreed not to
seek a rate adjustment for a certain number of years into the future, likely without
contemplating the possibility of any new greenhouse gas compliance adjustment.
What options are available, either regulatory or statutory, to address such
contractual situations to prevent economic disruption in the interstate natural gas
pipeline market?
Response:
Unless Congress enacts provisions to the contrary, parties to negotiated rate or
settlement agreements currently must file with the FERC for approval to amend or
revise such agreements. The Commission’s consideration of any proposed change
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to these contracts depends on whether the parties have reserved for themselves the
right to unilaterally change their agreement. If the parties have reserved that right
in their agreement, then the Commission will approve or disapprove the requested
change based upon a determination of whether the change is just and reasonable.
If the parties have no such right in the agreement, then the Commission must
determine whether the requested change or abrogation of the contract is in the
public interest.
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Senator Boxer. Thank you so much.
We will each have 5 minutes to question.
Secretary Salazar, how will this bill help to mitigate the impacts
of unchecked global warming pollution on the Nation’s most pre-
cious natural resources? And I know how strongly you feel about
being the guardian of those for this time. So how will this bill help
to mitigate if, if we are successful, and what would happen if we
fail?
Mr. Salazar. It would have a dramatic and positive impact in
terms of protecting the national icons of America. And you can see
it in the way that I think many Americans would see it if they
have the opportunity to sit in my chair, where you can go to a place
like the Apostle Islands in Lake Superior in Wisconsin, and you
can see the warming of the surface of Lake Superior by 5 degrees
or flying across to the wildlife refuges of Minnesota and recognizing
what is happening with wildlife and wildlife migration and their
habitat because of the warming of those places.
Or perhaps even most graphically, in places like Glacier National
Park, which we have now projected will have no more glaciers by
the year 2020. And finally, in the Grand Canyon, where there was
a compact with respect to water put together back in the 1920s,
which we now are projecting that there will be perhaps as much
as 20 percent less water available in the Colorado River basin,
which will affect all of those States, including Southern California.
So the urgency of this bill is there. And I believe that one of our
responsibilities is to be able to tell that story of urgency to Amer-
ica.
Senator Boxer. Thank you, and you do it so very well.
Administrator Jackson, a lot of people think that the trading pro-
gram that we have in this bill is somehow brand new. Some of my
colleagues call it a tax. All of them do, on the other side. They
never called it a tax when it was in the Clean Air Act’s acid rain
program. So, they never called it a tax then.
So now, what I want to ask you is how successful has the Clean
Air Act’s Acid Rain Sulfur Dioxide trading program worked? And
do you have optimism that a trading program around carbon will
have a similar impact?
Ms. Jackson. Thank you, Madam Chair.
The acid rain control program — the predictions at the time were
that it would cost a lot of money and be ineffective. And EPA was
very proud of the fact that it worked in a bi-partisan fashion back
then with the first Bush administration to pass amendments that
would actually prove that to be wrong and have indeed proven it
to be wrong.
The acid rain costs, which were regarded at the time to be opti-
mistic, even on behalf of the Bush administration, turned out to be
lower than thought. In fact, the Administration estimated that the
annualized compliance costs would be $4 billion a year. In fact, the
costs are now estimated to be just $2 billion annually. So it is a
lot cheaper, and emissions have been reduced.
It has also proven to harness the marketplace and the private
sector, once they got the clear signal, once the market incentive
was there, once they knew that S0 2 pollution had a cost, they were
able to make business decisions. We saw the most cost effective re-
248
ductions come forward. And that is what I believe can happen here
as well.
Senator Boxer. Thank you.
Secretary Chu, I see that Senator Specter is back. His focus was
jobs. I have here a study by the Center for American Progress. It
says, “Investments in a clean energy economy will generate major
employment benefits for Pennsylvania and the rest of the U.S.
economy.” They go on to say, “Our research finds that Pennsyl-
vania could see a net increase of about $6.1 billion in investment
revenue and 72,000 jobs.”
It points out that adding 72,000 jobs to the Pennsylvania labor
market in 2008 would have brought the unemployment rate down
to 4.3 percent from its actual level of 5.4.
The reason I am using Pennsylvania, I just happen to have this
particular paper in front of me. We talked before, I think it was
at a Democratic Caucus lunch, about the importance of letting the
private sector put a price on carbon through this system. So my
question is, the certainty of that kind of policy, how important is
it to attracting the kind of venture capital that we need to get this
economy rolling forward?
Mr. Chu. Well, as I said in my testimony, that long-term signal
is incredibly important, because when companies make invest-
ments, for example, when power companies make investments,
they are thinking this investment will last for 60 years. It could
take anywhere from 5 to 10 years from the decision to go forward
to the time it is really built. So you are really talking a 70-year
time scale. In that time scale investment, you really need these
long-term signals to say what is going to be happening in the next
50, 60, 70 years.
To the question about jobs, I should also say that not only are
we talking about jobs today in the near-term future, we actually
need to talk about jobs that will be sustaining 10 years, 20 years,
50 years from today. So these are going to be jobs that will con-
tinue to be jobs in the future. The rebuilding of the American infra-
structure, the retrofitting of our buildings, the building of a clean
new industry, the restarting of a nuclear industry in the United
States and the building of those power plants, these are all jobs
where, if we don’t choose to lead in the development of this new
technology, China and other countries will.
Senator Boxer. Thank you very much.
Senator Inhofe.
Senator Inhofe. Thank you, Madam Chairman.
I have been observing over the last 2 and a half hours or what-
ever it has been how quickly we forget here in these hallowed
halls, the insulation of the U.S. Senate. It was only 60 days ago
we came back from our August recess. And we have forgotten all
about the outrage that is out there. Those people, many of them
have been denigrated for not really expressing a sincere concern,
but let me assure you, I say to my friends in the Senate, it is there.
And there are two issues, health care and then this thing we
keep saying is not a tax, but what I consider to be the largest tax
increase in history. And the people understood that.
Now, I also, I don’t want any of the media to think just because
I had to sit here and listen to our good friend, Senator Kerry, for
249
28 minutes, that I don’t have responses to everything he said. I can
assure you that over a period of time, I will be responding to such
things as naming Duke Energy and other companies. We have al-
ready talked about this. There are clear winners and losers in this
program. We had a hearing, and I outlined how much money each
of those individuals from corporations would make if this thing be-
comes a reality. And they are out there. It will be huge amounts
of money. So follow the money; it is there.
The carbon tax, he mentioned James Hanson. James Hanson, we
all know, is the recipient of $250,000 from the Heinz Foundation.
However, for the first time, I agreed with him, his statement, just
the other day was, this James Hanson, cap-and-trade is a temple
of doom, it would lock in disasters for our children and our grand-
children. He goes on and on talking about that.
And the reason he is doing that, I say to my friends in the panel,
is that if you want to go about this honestly, go ahead, do a carbon
tax, so everybody knows. But there is a good reason why we are
not doing that. And that is, it can be so easily masqueraded by this
very complicated tax in trade thing, or cap-and-trade thing that we
are talking about.
Then I have to correct my fellow Senator, he is not here right
now, but I understand he is returning, Vitter, when he said that
China is cranking out two new coal-fired generating plants each
month. It is really, according to the Chinese government, they are
doing it each week, not each month. It goes on and on.
And on the science. The science is more definitive than ever. You
keep saying that, because you want to believe it so much. And yet
the same people, those scientists, I have a list, I say to my good
friend, Secretary Salazar, of scientists who are on the other side of
this issue, back during Kyoto and even back 6 or 7 years ago, and
during the consideration of the 2005 bill, who are solidly on the
other side right now. It is coming. It has already shifted. It is not
shifting, it already has shifted.
And I would suggest to you that when we get on the floor and
talk about this, I will say to my good friend, the Chairman of the
committee, that I am going to do the same thing we did during the
debate, if it comes to debate on the floor, during the Warner-
Lieberman bill. And that is say, science is not settled, everyone
knows it is not settled. But for the sake of this debate, let’s assume
it is. It is not, but let’s assume it is so we can talk about the eco-
nomic issues. And that is what we would be doing.
So quickly here, Administrator Jackson, first of all, I would just
make one comment. I think you would have to agree with this. If
not, let us know in writing for the record if you disagree, that we
use this example of acid rain. In acid rain, there was a big dif-
ference. That is, technology was proven, and that is a huge dif-
ference from where we are today.
But I do want to ask you one question. Senator Barrasso and I
sent you letters on the endangerment finding throughout August
and September, and we didn’t get any response until last night
about 5 o’clock. I don’t want to use up the remaining time, but if
you just for the record would let me know, if you would try to stay
with those things that you stated during your confirmation hear-
250
ing, that you would be responsive to our requests, I would appre-
ciate that very much.
The second thing I would ask, a response for the record from
each of the members, that is the worker adjusted assistance provi-
sion of this Act, if that doesn’t presume that we are going to lose
jobs in the Act.
But last, since Secretary Salazar, I know that you have a sched-
ule, you might get up and leave, I want to give you the opportunity
to respond to something that I feel is very significant. That is a re-
port that just came out last week from the Congressional Research
Service that says America’s combined recoverable natural gas, oil
and coal reserves is the largest in the world. We didn’t used to be.
It is now. And I agree with the three goals that you outlined at the
beginning of your 5-minute statement. I would like to know if,
should we develop these resources, and what can your department
do to help do that.
Senator Boxer. Senator, you have gone over your time, but you
want these in writing. So what I was going to suggest
Senator Inhofe. That would be fine, for the record.
Senator Boxer [continuing]. As a way we have done it before. If
you could get your questions in writing from your staff to ours by
tonight
Senator Inhofe. No, Madam Chairman, I have already stated
them. I don’t have to change them.
Senator Boxer. So you don’t want to put them in. OK, then what
we will do, with your permission, because I just want to make sure
it is answered to your satisfaction, we will take your question from
the record and we will put them in writing to Lisa Jackson. And
we would ask all the panelists, please, to get your answer in by
close of business tomorrow. Is that all right with everybody?
Senator Inhofe. Fair enough.
Mr. Salazar. Madam Chairman, if I may, I need to excuse my-
self for another meeting.
Senator Inhofe. You have to leave, yes.
Mr. Salazar. But I wanted to say two quick things. One is that
I had a formal statement that I will submit for the record, and I
am sure my colleagues as well, and hope that that can be accepted
for the record.
Senator Boxer. Yes.
Mr. Salazar. And second, on behalf of my colleague, Tom
Vilsack, who is not here, but he has been part of these meetings
getting ready for this hearing, he would be here to tell the people
of American that rural America is going to benefit significantly
from this legislation.
Thank you very much.
Senator Boxer. Yes, and I have placed his statement in the
record.
Thank you so much. We are so sorry that we ran a long time,
but you know what, I think it is key for colleagues to have their
chance.
With that, we will go to Senator Klobuchar.
Senator Klobuchar. Thank you very much, Madam Chair, and
thank you to all of you for your leadership. Thank you, Senator
Salazar.
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I wanted to clarify, in my opening statement I talked about how
the Federal Government hadn’t gotten to the trailhead. And I prob-
ably should have more likely said Federal legislation hasn’t gotten
to the trailhead, because I want to commend all of the Secretaries
for the work that you have done with the legislation that you have.
But I truly believe that we can bring more jobs and put America
back in the driver’s seat here by passing some forward thinking en-
ergy legislation.
The question I had, and I think, Secretary Chu, I have always
enjoyed talking to you about these new technologies, and a more
optimistic approach to this. To turn a phrase on Senator Inhofe, to
sort of crawl out of this temple of gloom that gets created when we
talk about this legislation. I really see some optimistic possibilities
here.
When you look back, when President Kennedy talked about put-
ting a man on the Moon, all the technologies that came out of that
that weren’t about the Moon, from GPS monitors to CT scans to
satellite weather technology to the little chocolate space sticks that
my family took on camping trips in the 1970s. Could you talk about
the signal that this can provide to the private sector for invest-
ments, and explain that in a little detail? Because we have with
this game of red light, green light that we have done in Congress
with some of these tax incentives, we just haven’t gotten to the
place that other countries have gotten with investment.
Mr. Chu. Sure. I think going back to what we need are long-term
signals, both on anything we do, whether it is a tax credit, subsidy
of some kind, programs for it. On-again, off-again is disastrous if
you do it every other year. It just doesn’t work. Denmark and Eu-
rope and Germany developed their wind turbine industry. They
took it away from us, because they gave a very long-term view to
this.
Going back, those long-term signals, particularly a cap on carbon,
and then you know what is going to happen in 2020, 2030, 2040,
2050, can actually stimulate a lot of stuff. Now, yesterday we just
announced the first 37 selections for our ARPA-E program. We had
nearly 3,700 applicants. So we had to winnow it down to the top
1 percent.
Some of those top 1 percent are truly spectacular. New batteries
that could potentially scale up where you can store megawatt hours
of energy, at a cost that perhaps is a factor of 10 or 20 cheaper
than existing technology. And this is an old metal liquid battery
that the positive and the negative side of the batteries are metal,
and the electrolyte in between is a metal salt. And when you
charge the battery up, it goes to pure metal and a little electrolyte
is left over and you discharge it. It goes, all the metals go back into
the salt.
So you can make a swimming pool sized battery, or you can
make it this big. And so to see ideas like that, brilliant ideas that
I am beginning to see on carbon capture, that could dramatically
lower the cost, and when you see these things popping up, and
most of what I see popping up has only appeared in the last 5
years.
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Senator Klobuchar. And your view is that if we don’t put these
kinds of clear market signals in place in legislation we may not get
this investment.
Could we just switch to nuclear? Because I am in the group that
believes this has to be part of our solution as well, and I know you
have been positive about this. Just the timeframe for nuclear, as
we know that this should be, for those of us that believe it should
be part of the solution. If we only relied on nuclear, what would
be the timeframe of that? I guess I am getting to the point of, we
have to have a combination of things, some things that move
quicker.
Mr. Chu. We are pressing very, very hard on getting the first of
the nuclear loan guarantees. We have authorized $18.5 billion for
nuclear loans. That is able to start three, maybe four, depending
on foreign partners. Four nuclear reactors at most. So we are work-
ing very, very hard. Hopefully very soon we can announce the first
of these, and hopefully by the end of the year the rest of them.
This is a beginning of the re-starting of the nuclear industry.
Getting three or four going, I would say, doesn’t really get it going.
So I view that as the beginning. But we are also looking.
Senator Klobuchar. So what is the timeframe on that, for when
we will get that energy?
Mr. Chu. Those loans?
Senator Klobuchar. Yes.
Mr. Chu. As I said, we are trying to move forward by the end
of this year.
Senator Klobuchar. No, but getting a nuclear power plant up
and running.
Mr. Chu. Well, that depends. It depends on a lot of things. It de-
pends on what the NRC does. The NRC is trying to streamline its
review process of the power plants. And so one wants to decrease
the time of approval. They are trying to make generic approvals of
each type of power plant, instead of just doing one off each time.
And then a much quicker approval at a particular site.
Senator Klobuchar. But how about when we really get the en-
ergy from it? Nothing to do with delays and the Government proc-
ess.
Mr. Chu. Ideally, it could be between 5 and 10 years from the
time you say “go ahead” to the time you turn on the electricity.
Senator Klobuchar. Thank you very much.
Senator Boxer. Senator Voinovich.
Senator Voinovich. Administrator Jackson, you and I and our
staffs have had an ongoing disagreement about the thoroughness
of your doing your analysis. In your report on the impacts of 1733,
you state, “Because of these many similarities and the relatively
small differences between the two bills, it is likely that a full anal-
ysis of 1733 would show economic impacts very similar to H.R.
2454.” The fact is that you have not done a complete analysis, is
that correct?
Ms. Jackson. We have not run the full economic modeling, sir.
Senator Voinovich. How long would it take you to do that?
Ms. Jackson. I believe we estimated 4 to 5 weeks. I think that
was the estimate to run the full suite of modeling.
253
Senator Voinovich. So that we would actually have the numbers
of a full analysis. And that is exactly what I have asked the Chair-
woman that we have before we mark up this bill from this com-
mittee.
The other thing that we have talked about, I remember when we
talked and you came in, you said that you would prefer that we
deal with climate change through legislation rather than the Clean
Air Act. I note in this legislation that it does not preempt the Clean
Air Act. In other words, we would continue to have, we would have
this legislation and we would also have the Clean Air Act to con-
tend with.
Have you changed your position on that?
Ms. Jackson. I have not changed my position. I have — my belief
is that there is only one way to get economy-wide market incen-
tives for reducing greenhouse gas emissions, and that is through
new legislation. But I also firmly believe that the Clean Air Act has
value and that there are common sense measures that can be
taken under the Clean Air Act, either in the absence of or with new
legislation.
Senator Voinovich. Well, my feeling is this. If we are going to
have a comprehensive climate change piece of legislation pass that
the people out there, that Dr. Chu referred to, that are going to be
making decisions, ought to know that this is it. In other words,
these are the rules that we are going to abide by and we can count
on it, and they are not going to change the rules on us 5 or 10
years from now.
Dr. Chu, and by the way, the number in the Boxer-Kerry bill is
20 percent, Waxman-Markey is 17 percent. I can’t believe that by
increasing that percentage, that you are not going to have a larger
impact on the economy, on the number of jobs and also on the rates
that folks in Ohio are going to have to pay for electricity, for nat-
ural gas and pay for gasoline.
But Dr. Chu
Senator Boxer. Do you want an answer to that?
Senator Voinovich. No, I just
Senator Boxer. OK. Well, I would appreciate — can you freeze the
time? I would appreciate your answering that in writing, because
I know there is a very good answer to that. So if we could have
that done as well. OK, go ahead.
Senator Voinovich. Dr. Chu, one of my problems with this legis-
lation is that the caps are unrealistic in terms of the availability
of technology. The real issue that we have here is by 2020, are we
going to have the technology, for example, to, there is an assump-
tion about how many clean coal plants we are going to have. Are
we going to have enough money to do that technology so that we
can capture and sequester carbon? For example, my concern is this.
The Chinese are putting on two coal-fired per week. If they con-
tinue to do these emissions from coal, it is urgent that we get at
this carbon capture and sequester issue, because it is not only
going to affect the United States, but also China.
And I think that the President talked about 15 percent of this
money, the bill money going to technology. And I think the Kerry-
Boxer bill is a little better than Waxman, but not a whole lot better
254
in terms of available money to do technology. Could you comment
on that?
Mr. Chu. Yes, I think that in the 2020 time scale, I see a couple
things beginning to turn around. It is our goal, for example, to test,
pilot a number of carbon sequestration things. I think in a reason-
ably optimistic analysis, these things could be done in 8, perhaps
10 years. So it is 2009 now, and then you begin to deploy on a more
or less routine basis some things, so it begins to happen.
Nuclear power, I said ideally, 5 to 10 years. Let’s put it a little
bit further and say 10 years from today power plants start turning
on.
So a lot of the things that will give us the much reduced carbon
or completely clean things like that will take a scale of 10 years.
We can grow the wind renewable aggressively, as we are doing
now. Energy conservation, if we really think hard about how to im-
plement that is, I believe, the lowest cost option to getting a lot of
the carbon out of what we are doing. It is things like that. But it
has to be done in a programmatic, very aggressive manner.
Senator Voinovich. Thank you.
Senator Boxer. Thank you.
Senator, there is, the question you raised is answered in the EPA
modeling, because we have some offsets to that increase that deal
with allowing landfill, coal mine and natural gas system methane
sources as offsets. That is why it doesn’t impact the cost.
Senator Specter.
Senator Specter. Thank you, Madam Chairman.
Administrator Jackson, the issue that Senator Voinovich has
raised is a big one. One of the factors which has brought support
to this legislation has been the provision in the House bill which
does make the determination as to emissions on carbon dioxide.
And the approach is to have to buy allowances, so you can’t emit
carbon dioxide unless you pay for it. Establishing that standard,
that the Congress would, would have a tradeoff of not having EPA
come in with additional regulation. And that is a big selling point
for people who don’t like the legislation.
Now, there are those who are very much in favor of keeping EPA
with its regulatory authority. But we face a very practical situa-
tion, like your thinking, if it comes down to getting the votes so
that we really deal with carbon dioxide, and deal with it in a pretty
rugged fashion, 2020, 2017 or whatever we do, and these allow-
ances are very expensive, and we make that kind of gigantic
progress, would you concede a little on that issue?
Ms. Jackson. Senator, I certainly understand the point. I would
only make three points for consideration, because I believe the EPA
authority question is one that will certainly be discussed in this
committee and in broader venues.
The first is that there are — the cap in this bill is actually not en-
tirely economy-wide. There are important carbon emission sources
that could be addressed through Clean Air Act regulation. The
transportation sector and the rules that Secretary LaHood and I
cited are a good example of that. So obviously, not all Clean Air
Act regulation is created equally.
Second, and quite important, is that the move to market incen-
tives, we have heard from communities who say it is very impor-
255
tant that we also make sure that we don’t inadvertently con-
centrate pollution in any one area. So part of the Clean Air Act
New Source Review idea is that it allows for when significant in-
vestments are being made, or new sources are coming on, for us to
reset the playing field, if you will, to say, no, listen, no matter what
pollution allowances are calling for at that point, we need to think
about the fact of whether we should be investing any more in a
community. It does allow for equity concerns, if you will, across
communities. And that is important.
And last, I will simply say that I think that your point about the
fact that this is designed to address some places that there are
overlapping authorities is a good one. It is certainly one I respect
tremendously. I have already come out to say that I believe very
strongly that the most cost effective way to put a price on carbon
and move our market and transition our economy and build a clean
energy economy is through cap-and-trade and though legislation of
this type with this kind of model.
So I think the market incentive tradeoff with regulation is one
that we are happy to continue to discuss with this committee.
Senator Specter. Well, I am glad to hear you like cap-and-trade
and like the legislation. But in order to get the legislation, there
may have to be a little give. But if there are new plants, they are
subject to totally different standards. And you are dealing with car-
bon dioxide; you are not exactly dealing with a local problem. You
are dealing with a general problem.
But if you have other ideas that you think there needs to be
more flexibility, I would suggest you let us know what they are,
and let us deal with them in legislation. Because if we come up
with legislation which is finite and people know what to expect,
you will get a lot more support out of western Pennsylvania and
maybe from Arlen Specter or Bob Casey, although I don’t want to
speak for my colleague.
But if there are other things that you want, let us know what
they are. And we will try to accommodate them. But there is a
great deal to be gained by certainty, so people can make plans.
That is what we want to legislate on. If the Administrator of EPA
continues to have flexibility, people are going to say, we don’t know
where we are, we don’t want to buy a pig in a poke. But as tough
as it may be, through legislation, they may say OK.
I am almost out of time, so I just want to make two comments,
one to Secretary LaHood, about CLEAN-TEA, the legislation which
Senator Carper has championed and I have co-sponsored, the Car-
per-Specter bill, which the Chairwoman has graciously included in
this legislation. That would provide for a reduction of vehicular oil
burning or cars, for mass transit, for bicycles, for rail. And I would
like to see us pursue that at the administrative level.
And a question for Chairman Wellinghoff to be answered for the
record, I have introduced in the last two Congresses legislation,
now in Senate Bill 32, which calls for hearings by FERC. And in
my travels through Pennsylvania, 67 counties, I have a lot of com-
plaints about transmission line and power lines and pipelines. My
legislation would require a hearing. And a hearing is a very useful
thing. Some hearings are not very useful, like my town meetings
in August.
256
[Laughter.]
Senator Specter. But a hearing has great utility in allowing peo-
ple to express themselves and to have some consideration, even if
you don’t find it. So I would appreciate it if you would take a look
at Senate Bill 32, which Senator Casey and I are pursuing. I think
it would take a lot of the steam off, if you come out and listen to
people. I find it very helpful. And even if you can’t agree with peo-
ple, they like to have an opportunity to hear it.
Thank you, Madam Chair.
Senator Boxer. Thank you, Senator Specter, and you are abso-
lutely right about certainty. That is what this legislation is all
about. Without the certainty, you are not going to have the invest-
ments. Without the certainty, nobody is going to know what hap-
pens.
So we will work together to make sure that you have that cer-
tainty that you feel is necessary. As long as we protect clean air,
that is what we are about.
Senator Specter. My constituents and I very much appreciate
that assurance. Thank you.
Senator Boxer. Absolutely. Thank you, Senator.
Senator Sanders.
Senator Sanders. Thank you, Madam Chair. Just a couple of
questions for Secretary Chu and a question for Secretary LaHood.
The State of Vermont has, I believe, led the country in terms of
energy efficiency. We are actually consuming less electricity now
than we were a couple of years ago. And it is not like, the recession
has hit us, but not any worse than it has hit other States.
Mr. Secretary, I understand you are announcing today a very sig-
nificant funding for the “smart grid,” and Vermont is going to do
well by that. My understanding is that in previous studies, a home
can reduce its electricity consumption by 15 or 20 percent with one
of these smart grids. Can you take a moment to explain to the peo-
ple what you hope to accomplish with this smart grid program?
Mr. Chu. Well, the first thing that will happen with a smart
grid, especially with homeowners, is what you want to do is you
want first to let the homeowners know sort of in real time how
they are using electricity. And at times, as we transition to real
costs, real time pricing of electricity, for example, it is not true in
Vermont, but let’s say in a place where there is a lot of air condi-
tioning, and you are using energy, it costs a lot of money to provide
power during those peak times.
We have about 5 percent, if you look at the power that we have,
a lot of peakers, they are essentially idle except for maybe the last
5 percent of the time.
Senator Sanders. The bottom line here, it will enable consumers
of electricity to use that electricity much more cost effectively. Do
you have any estimates as to what kind of savings we can see in
that in terms of percentage of reduction of electricity in the average
home?
Mr. Chu. Not off the top of my head. But I know globally, across
the United States, if we just peak load shift that last 5 percent,
which we can do without really any disruption or change in life-
style, globally and in the United States, we are talking about over
$100 billion per year.
257
Senator Sanders. The other thing is, Mr. Secretary, I have a
chart here, which deals with the cost to build new power plants in
2009. What it suggests is that the least expensive way forward is
through wind, followed by biomass, followed by solar thin film, fol-
lowed by geothermal, followed by solar thermal. Then we have coal
gasification. And that number does not include coal sequestration,
which makes that a lot more expensive. Then we have nuclear.
In other words, what this chart tells you, if you are serious about
building more capacity in the United States, the most cost effective
way to go forward is through the new sustainable energies. What
does that chart tell you in terms of how this country has to invest
into the future?
Mr. Chu. Unfortunately, my eyes are getting old.
[Laughter.]
Mr. Chu. I can read the axis, I can’t say about the numbers. But
certainly one of the things is that we are trying to, first, the first
thing you do is you work very hard on energy conservation, so you
don’t build anything new. And you just save. If done correctly, that
is a money maker. The investments in energy efficiency, the con-
sumer actually keeps that money.
So that is the best thing you can do.
Senator Sanders. My only point here is that the most expensive
new electricity generation is nuclear and coal. Yet, I sit around this
committee and all I hear is nuclear and coal. It seems to me that
if we are smart, and we want to save taxpayers money, and we
want to protect the environment, and we want to create jobs,
maybe we should start looking at wind, biomass, solar and geo-
thermal.
Let me ask Secretary LaHood a question. This is just a very gen-
eral question. People come back from visits to Europe, they come
back from visits to Japan, they come back from visits to China, and
they say, wow, they have these fast, these high speed rails, zillions
of people going to work on mass transportation. And we come back
to the United States, we have trains that are going 25 miles an
hour over rickety rail. Why is it that the United States today is so
far behind other countries in terms not only of rail, but of public
transportation in general? What are we going to do about it?
Mr. LaHood. Lack of investment. We have never made the in-
vestment. If President Eisenhower had signed the Passenger Rail
Bill instead of the Interstate Bill, we would have state-of-the-art
like they do in Spain, like they do in Europe, like they do in Asia.
But we have a state-of-the-art interstate system. Second to none in
the world.
But because of President Obama’s vision, because of Vice Presi-
dent Biden’s vision, high speed passenger rail, better passenger rail
is coming to America. The down payment is $8 billion. That is not
near enough. But there are companies from Europe and Asia in the
United States right now ready to make investments in passenger
rail. And we have some great proposals that have come into the
Department. We are evaluating them for the use of our $8 billion.
We need help from Congress to
Senator Sanders. But you will agree that $8 billion is a fairly
paltry sum?
258
Mr. LaHood. It is a down payment. It is a very small amount.
But it is $8 billion times more than we have ever had at the De-
partment.
Senator Sanders. All right. Let me ask you this, also. It is not
just rail. I come from a rural State where people, in a vast majority
of instances, can’t get to work on public transportation. They have
to use their car, period. What are we going to do about that?
Mr. LaHood. We are going to continue to work with you, Sen-
ator, and others that represent rural States on making sure there
are good transit services for people that want to live in rural Amer-
ica. We owe it to them to do that. There are people that want to
stay in small towns, but yet get to a larger area to go to a doctor
or go to the grocery store or go to the drugstore. And we are going
to work with you and other Senators from rural America to make
sure these transit services are available.
Senator Sanders. Madam Chair, I would just simply say that
when we look at transportation, we have to have a special focus on
rural transportation, which needs just an enormous amount of im-
provement. Thank you all very much, to all of the panelists.
Senator Boxer. Thank you, Senator.
Senator Udall.
Senator Udall. Thank you, Madam Chair.
I don’t want to neglect Chairman Wellinghoff, so I want to ask
you a question. Your testimony here today discussed the need for
a renewable electricity standard, and RES and the climate bill are
intended to be complementary. We expect that with what the lead-
ership has talked about them to be joined on the Senate floor. Sev-
eral Senators have joined me in introducing legislation that would
set a 25 percent renewable electricity standard by 2025. Based on
the rapidly declining costs and the huge potential resource, espe-
cially in the West, do you believe that this standard is achievable,
and what would its impact be on our climate goals?
Mr. Wellinghoff. Thank you, Senator Udall. I assure you, I
don’t feel neglected.
I do think it is achievable . In fact, I was one of the primary au-
thors of the renewable portfolio standard in the State of Nevada
and am very familiar with California’s and Colorado’s and your
State’s efforts in that area. We now have 31 States, in fact, in this
country that have renewable, portfolio standards for renewable en-
ergy standards. But I think it is essential that we have a national
standard. It is time that we have a national standard, and I think
the goals that you set are very achievable.
Senator Udall. Secretary Chu, recently the Potential Gas Com-
mittee found that the U.S. natural gas supply has increased 40 per-
cent in just 2 years, and that some industry estimates are pointing
to a 100-year supply of U.S. natural gas. I believe that natural gas
is an overlooked resource and has great potential to replace oil in
heavy truck transportation, create jobs in States like New Mexico.
Does the Department of Energy believe that we are entering a time
of abundance with natural gas that could make our climate goals
much easier to reach, since it is a relatively low carbon fuel?
Mr. Chu. The short answer is yes. I have heard estimates consid-
erably more optimistic than the one you just cited. And if you in-
clude Canada, it is considerably more. So we are beginning to look
259
at things, for example, in central locations where there is not an
infrastructure problem. We are funding, piloting vehicles that are
propelled by natural gas, delivery trucks, buses, go to the central
station and then will always return to that station, to see if this
is a viable thing.
Certainly in this century, because of the new technologies that
can recover natural gas from shale, it is a lower carbon option.
Senator Udall. And from everything your scientists tell you,
these are pretty reliable estimates in terms of the increase and the
potential out there?
Mr. Chu. They appear to be.
Senator Udall. And talking about renewable energy here, from
your perspective on renewable energy, are the costs per kilowatt
coming down for solar and wind, and should we expect it to con-
tinue under this legislation? And are the innovation benefits in this
area reflected in traditional economic analyses of climate legisla-
tion? Or is this an extra benefit that we should expect to see?
Mr. Chu. Well, the costs of wind and solar are coming down.
They are steadily coming down. It is looking very good. Right now,
the cost of the solar module, the retail cost, has just gone down
below a dollar per watt. A decade ago, it was $5, $8 a watt. So it
is remarkable. The things that we have to do in terms of photo-
voltaic solar, in particular, is to balance the system costs. It has
to be coming down at that same rate, much cheaper inverters,
much easier to install type of modules, things of that nature.
But I am optimistic that solar and wind, they are continuing to
come down.
Senator Udall. Secretary LaHood, you talked a little bit about
railroads and bringing back the railroads. Is that an area where we
could see significant savings in terms of energy efficiency and lower
costs?
Mr. LaHood. Take a lot of cars off the road, take a lot of CCL
out of the air. It is much cleaner burning transportation, whether
it is light rail or whether it is passenger rail. We know that it is
cleaner burning, and we know that when somebody gets on a train,
they are out of their automobile. The benefit of it will be enormous
in terms of taking CCL out of the air.
Senator Udall. And it is a big priority for your Department?
Mr. LaHood. It is an $8 billion priority right now, and we hope
with the help of all of you in the Senate and the House, we will
continue to make it a priority. But it is President Obama’s vision
and Vice President Biden’s vision. I want to give them the credit
on this. Senator Sanders’ question is very important. We haven’t
made the investments in America in passenger rail. But we are
about to do it.
Senator Udall. Thank you very much. Thank you, Madam
Chair.
Senator Boxer. Thank you very much.
I just want to give us a little update on how we are proceeding.
We are going to go down the list of everybody, and we are going
to, therefore next call on Senators Lautenberg, then Merkley,
Whitehouse and Cardin, of those who are here. We are not going
to have any more rounds. So you should know that, because it is
getting very late.
260
I also wanted to say, while colleagues are here, tomorrow we
have panel one on jobs and economic opportunities, panel two on
national security, and I guess is it two panels? Where is the third
panel? Panel three on utility policies and panel four on adaptation.
We have a very big agenda tomorrow. We start at 9:30. We are
going to work throughout the day just taking a small lunch break.
So I wanted to let colleagues know.
Next on the list, Senator Lautenberg.
Senator Lautenberg. Thanks, Madam Chairman.
I am struck by the fact that as we look at the placards here we
see, why not? Those are the questions that are asked. Why not do
something positive? Why doesn’t it say, the reason that we want
to do these things is a benefit to ourselves, to our families, to fu-
ture generations, to the health and well-being of America? We don’t
see any placards up there that say that. We say, why not. Well, it
is the wrong attitude, I think, and that is what has got us in the
trouble that we have.
To Administrator Jackson and Secretary Chu, by the way, thank
each one of you, you are a terrific panel, and a good start that we
had, Madam Chairman, with John Kerry here.
The Intergovernmental Panel on Climate Change, based on the
research of leading scientists around the world, says U.S. has got
to cap emissions to at least 20 percent below 2005 levels by the
year 2020. A recent study says that we can reduce our emissions
by 17 percent by 2020 without adding to that cost using just energy
efficiency.
Now, do either one of you, you first, Mr. Secretary, agree that we
or doubt that we can’t achieve a 20 percent emissions reduction by
the year 2020?
Mr. Chu. Oh, it is achievable, but you have to look at every cor-
ner. And also, I forgot to mention, that would also include, in addi-
tion to efficiency, there are offsets: reforestation, agricultural, ways
of changing agricultural practices. That is also part of the mixture.
Some of the other technologies that I talked about, like nuclear and
coal; it is going to take a while to get them on. But you can pro-
mote the renewables that we do have. The cost is going down.
Wind is approaching parity with new power in terms of coal or gas.
So if you look at all the sectors and say, you can say, yes, we
can do this. But you have to look across the board.
Ms. Jackson. And Senator, the only thing I would add to my col-
league here is that the clock is ticking. So every time we don’t have
legislation, every time we don’t move forward, every time we don’t
have a price on carbon, we are losing precious time that might help
us get to that 2020 goal. So we are actually racing against the
clock. It doesn’t help to start in 2015.
Senator Lautenberg. But you each agree that we can do this?
Ms. Jackson. Yes, we have to.
Senator Lautenberg. And the Intergovernmental Panel and the
Union of Concerned Scientists says that we need to be on that kind
of a glide slope in order to get our long range objective, which is
a longer time than I may be here. No? Thank you very much for
that assurance.
[Laughter.]
261
Senator Lautenberg. Secretary LaHood, good to see you here.
We have had a chance to get to know one another over the period
of time that you are serving. You are getting really good at this job,
I want to tell you.
So when we look at Amtrak, other forms of passenger rail, they
have a need to be eligible to receive that funding. What is the role
that passenger rail can play in lowering congestion? You described
preventing pollution, reducing our dependence on oil. Do you have
any kind of an estimate that tells us what we can achieve there?
Mr. LaHood. I will get you an answer for the record, because I
would like to be specific on that. But we know every time you get
someone out of their car, you reduce CCL. The work that we have
done with the EPA and the Administrator, Lisa Jackson, on getting
to a much better gasoline standard for automobiles by 2012 and
2016 is enormous. Every time somebody uses mass transit, whether
it is a bus or light rail or Amtrak, we know that they are out of
their car, we know that car is not on the road.
But I will be happy to get you the statistics. And we know that
we have some really good proposals coming in to us that are in the
Department for passenger rail. And we are evaluating those and
hopefully we will make some decisions on the $8 billion later this
year.
[Mr. LaHood’s response to the above question follows:]
Properly designed intercity passenger rail service can play an important and si-
multaneous role in all three — easing congestion, relieving pollution, and enhancing
energy independence. Passenger rail can accomplish all this by offering competitive
door-to-door travel times at affordable fares, thus diverting substantial traffic from
the energy intensive air and automobile modes.
For example, the Department’s commercial feasibility study (CFS) of high speed
rail 1 showed that in California, a new high speed rail system (analogous to that cur-
rently proposed by the State) would generate 4.7 billion passenger-miles in 2020,
of which 2.4 billion would be attracted from air and 0.9 billion from auto. These di-
versions would help to ease congestion at airports and on highways.
Furthermore, as discussed in the Department’s Vision for High-Speed Rail in
America, intercity rail consumes about 25 percent fewer BTUs per passenger-mile
than travel by automobile, and about 18 percent fewer BTUs than air travel. 2 These
differentials, when multiplied by the volume of traffic diverted, result in substantial
emissions and energy savings. For instance, the CFS projected a present value of
air and highway congestion delay savings and emissions reductions of some $13 bil-
lion (2009 dollars) from the California New HSR project alone.
As regards energy independence, while even diesel powered trains can economize
on fuel consumption over other modes, electrified railways have the added potential
of being completely oil independent. Already today, Amtrak’s Northeast Corridor
segment between New York and Washington obtains about 38 percent of its power
from totally green and totally domestic hydroelectric power.
For all these reasons, intercity passenger rail offers great promise of achieving
congestion relief, pollution abatement, and energy independence, all at the same
time — even as it increases the options and mobility available to travelers.
Senator Lautenberg. Ms. Jackson, a lot about the cost of pass-
ing a global warming bill. But the report by a former chief econo-
mist at the World Bank found that the inaction on global warming
could cost 10 times as much as transitioning to a clean energy
economy, because of the increased risk of drought, flooding, water
scarcity, rising sea levels, social disruption. How might our envi-
1 High-Speed Ground Transportation for America (September 1997), the Department’s most re-
cent corridor-by-corridor analysis of the operating and economic potential of high speed rail.
2 The source is the U.S. Department of Energy, Transportation Energy Data Book, Edition 26,
May 2007.
262
ronment be affected and our economy as well if we — the question
is too much, this is too easy for you, and I don’t want to give you
easy questions. You are better at the hard ones.
So with that, I say, thank you very much, each one of you for
your service and your being here today. Thank you, Madam Chair-
man.
Senator Boxer. Thank you, Senator Lautenberg. I think this cost
of doing nothing is a very important point to keep on making. It
is huge. And it is not in any of the economic models. We have to
keep remembering that.
Senators Merkley, Whitehouse and Cardin.
Senator Merkley. Thank you very much, Madam Chair.
The first question I wanted to address to Secretary Chu. The
McKinsey study has laid out an analysis that we could achieve 17
percent reduction in our carbon dioxide through energy efficiency
alone. It is very interesting to look at some of the numbers. For ex-
ample, the Lazar energy consulting firm has laid out the cost per
kilowatt in energy efficiency as between zero and $50, whereas the
complete range is below any form of new production.
And in essence, because energy efficiency also reduces the power
bills that folks pay, there is a real feedback that expands the pur-
chasing power of citizens in our Nation.
So given this set of facts, the low cost of energy efficiency, the
significant impact that energy efficiency alone could have on carbon
dioxide, are we under-investing in energy efficiency, even in this
bill? Do we need to go further? Should we have a separate energy
efficiency standard and really push all the concepts that are cost
effective in that realm?
Mr. Chu. Yes. The McKinsey study I know came out just this
summer, said by 2020 you can actually decrease the energy con-
sumption, the end use consumption by 23 percent of the aggregate
consumption, which includes the generation of all those losses by
26 percent. If you only count those investments based on net
present value, that would make money. So the report actually said
$680 billion savings, and you get 26 percent reduction in energy.
However, there are many economists who differ on that state-
ment. So we have actually been spending a lot of time digging into
it, trying to understand. There are some barriers at work here. For
example, if you want to retrofit your home, there are barriers, what
economists would call market failures. Many people don’t know
what to do. It is inconvenient. There is inertia, and there is also
a finance barrier.
So the short answer to your question is, if we overcome all those
barriers, then we can start to recoup this. That was part of my ear-
lier answer. Energy efficiency, you can’t just say make it happen.
You have to be very proactive because of these market failures.
Senator Merkley. Well, certainly I and many members of this
committee would love to work with you as you dig deeper into
those numbers and identify those barriers, how we might overcome
them and go further in that effort. Because when you look at what
you can do with energy efficiency alone, and give the fact that we
are closing in on 9 percent below the 2005 levels already on carbon
dioxide production, it starts to make it look like 20 percent by
2020. That is an additional 11 percent. Isn’t that demanding? And
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we could actually bridge that entire factor with energy efficiency
alone if we really applied ourselves to it, a strategy that actually
pays us back.
Mr. Chu. I agree. We are rolling out a couple of things. For ex-
ample, on retrofitting, it costs a lot of money. If you did it in a
mass produced sort of way, like you get one-half of the entire block
to sign on, so the energy auditor goes from house to house to house
to house, as a trusted, certified auditor, and then the truck that
blows in the insulation goes to house to house to house, all in the
same block, you can easily see where the price can come down by
a factor of two or three.
And there is a trust, it is a social event, a block party. So we are
going to be trying to pilot these things in the coming year to see
if we can really bring down those costs.
Senator Merkley. Thank you.
Another aspect of energy efficiency is turning to electric vehicles.
And my colleague, Lamar Alexander, noted that we could work to
have 50 percent of our cars be electric over the next 20 years. I
would reframe that a little bit differently in that I have read statis-
tics that if we were to take and have the cars on our road all be
able to go the first 30 miles on electricity, so they could potentially
be hybrid cars rather than full electric, preserving additional
range, but if all the cars could go 30 miles on electricity, we would
reduce the carbon dioxide production, which is, assuming the elec-
tricity comes from renewable sources, by 80 percent from passenger
vehicles. Should we be working more to really push the frontier on
the conversion of the American auto fleet. I would open this up cer-
tainly to Secretary Jackson and Secretary LaHood and to yourself.
Mr. LaHood. Let me just say this. I was in Detroit recently and
visited all three of the American automobile manufacturers. I drove
the Volt. It is the wave of the future. It is the way that, talk about
a company that is forward thinking, GM is forward thinking on
this. And so it is coming. And they get it. Because they know this
is what the American people want, because the American people
get it. It is an amazing vehicle, and it will be here soon.
Senator Merkley. Thank you.
Senator Boxer. We are going to move on, because we are over
our time.
Senator Whitehouse.
Senator Whitehouse. Thank you, Madam Chair. First of all, I
want to thank this very distinguished panel for being here. I know
you are all very busy and have significant responsibilities. But I do
think it is helpful for you to be up here, and I hope the fact that
every single one right now of our Republican colleagues has de-
parted, despite the fact that we have such a distinguished panel,
including four Cabinet members here, helps give you a signal as to
how difficult our lift is going to be on this issue with our col-
leagues.
A few quick points, the first, Secretary Chu, as you have heard
from Senator Alexander and others, there is considerable interest
in expanding our nuclear energy supply. The Navy does operate
nuclear plants very safely. However, they do generate waste. And
the waste is a considerable concern. I would urge that as you look
at the nuclear component of our energy portfolio, you invest aggres-
264
sively in potential technologies that could take our existing nuclear
waste and reconfigure it into fuel and turn it into value. I have
heard estimates that the power contained in our nuclear waste, if
properly reconfigured, could provide $2 trillion worth of energy, not
only essentially free energy, but energy that actually comes at the
savings of not having the disposal and national security risk costs
of all of that.
So I urge you to look very much in that area, and I will certainly
be far more comfortable with whatever the nuclear strategy is if it
has that investment in the future. One day we should be burning
this nuclear waste as fuel and not having it a continuing hazard
for thousands of generations into the future.
Mr. Chu. I couldn’t agree with you more. In fact we have started
a detailed look at this. If you look at the uranium you dig out of
the ground, and you ask how much of the energy content of that
uranium is actually used in our current light water once pass
through cycle, after you have enriched, there is energy content in
uranium 238. It is about 1 percent. Only 1 percent of the energy
content is used. The rest is either depleted uranium or
Senator Whitehouse. Let’s work together on making sure we do
that.
The next question is for Chairman Wellinghoff. FERC, I believe,
has some oversight responsibility over the dispatch rules by which
units are turned on and off. They are agreed by the local ISO, but
they have to be filed and approved by FERC, if I am not mistaken.
Mr. Wellinghoff. Yes, to the extent that there are organized
wholesale markets with independent system operators, those inde-
pendent system operators, the regional transmission organizations,
in fact do file their tariff rules with FERC as to how they do dis-
patch units within their footprint.
Senator Whitehouse. It is my understanding that those dispatch
rule do not take the environmental costs of the units into consider-
ation whatsoever, and that all other things being equal, they would
run a coal plant instead of a hydro plant because there is no ad-
justment for the pollution costs. And I would like to work with you
to see what might be necessary to have FERC take a look at that.
Because as we all know, those environmental costs truly are eco-
nomic costs. And to ignore them is to give an unwarranted subsidy
to certain industries at the expense of others and the public health.
Mr. Wellinghoff. We would very much like to work with you
on that. In fact, I was in China 2 years ago, and they were talking
about economic dispatch versus environmental dispatch, actually
looking at environmental dispatch in China. So we were very inter-
ested in looking at the feasibility of that in this country and how
it affects the economics of the overall system. We would like to do
that very much.
Senator Whitehouse. Good. Finally, Administrator Jackson, the
last point that I would like to make with you regard to some of the
comments that have been made about Clean Air Act enforcement.
The perspective that I have on this is that for many years, cor-
porate polluters in the Midwest have been ducking and dodging
around the Clean Air Act. They have not met their responsibilities.
What they have done is built smokestacks, higher and higher
smokestacks, now reaching as high as 1,000 feet.
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Now, a smokestack doesn’t make the air any cleaner. What it
does is it takes the poison, the pollution, and it exports it to other
States. Right now, in Rhode Island, on a bright summer day, the
radio in the morning could easily announce that today is a bad air
day. And infants and the elderly and people with breathing disabil-
ities should stay inside in the air conditioning. And it is not be-
cause of local emissions. It is because of what is being rained in
on us by these power plants. It is not just my State, Senator Lau-
tenberg’s State is downwind, Senator Cardin’s State is downwind,
Senator Sanders’ State is downwind, Senator Gillibrand’s State is
downwind.
So as we look at this Clean Air Act, there are a great number
of us who believe, I should say, there are a great number of us who
are in that geographic position. I very, very strongly believe it is
time that these power plants were held to account. They have
dodged around the law for too long. And their corporate lobbyists
have won against our children’s lungs. I for one am fed up with it.
So I hope you will stand firm on the Clean Air Act. I, at least,
and I hope many of my colleagues, will support you on that.
Senator Boxer. Thank you so much, Senator.
Senator Cardin.
Senator Cardin. Madam Chair, thank you very much.
I think each member of the committee has expressed our appre-
ciation for you all being here. I am going to go a little bit further.
I thank you for your public service, taking on the incredibly impor-
tant jobs that you are taking on in the Obama administration and
doing such an effective job on your individual portfolio, but also un-
derstanding it is part of a national strategy as we deal with the
energy issues.
I thank you for that commitment to get the job done, going well
beyond what is your immediate responsibility.
I want to just underscore two points that were made. Secretary
Chu, your point about conservation in our energy policy, critically
important; and Secretary LaHood, about investment and how we
make our investments. Let me start first by saying, I agree com-
pletely on the comments about passenger rail, but I take that a lot
further. I want to talk about transportation for a moment. Trans-
portation represents 30 percent of our greenhouse gas emissions
and 60 or 70 percent of our oil use. So it is a huge issue. And we
could do a lot better.
I want to get to public transportation, going well beyond just pas-
senger rail. I first start off by saying, this legislation makes a huge
investment in this area. Thank you, Madam Chair. Thank you for
what you have done for public transportation in this, in your mark.
It will make a huge difference on the infrastructure we need to con-
serve energy, as well as to have a more efficient way to have trans-
portation needs met.
But I want to get to the second point, which is how you use your
existing authorities. I would underscore the point that Senator
Whitehouse made about Administrator Jackson. You have put the
Environment back into the Protection Agency. We thank you for
that. You have used the tools you have. You have tools today that
you can use, and you are using those tools.
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And Secretary LaHood, I know you have a huge budget. Not big
enough, you would like to have more, we would all like you to have
more, we would like you to have more predictable funding. But we
do subsidize the passenger car more than we do public transpor-
tation in this country. And we need to change that. It is not going
to be easy.
But we need to look at how we use the existing resources we
have at our disposal. So I guess my point is, we need to get this
bill done. This bill provides opportunities for us to make the type
of investments in transportation that will make our country more
secure, much more competitive and certainly friendlier toward the
environment.
And by the way, for those who live in the Washington area,
maybe I could have gotten here in time if we had a better transpor-
tation system in place for commuting. It affects all of our lives. It
is the second worst congested area in the country, next to New
York. We could double the number of people using public transit
here. We just don’t have the capacity, and it is old, and it needs
investments.
So it is a matter of investment. This bill will make a difference.
But I just urge you all, in each one of your areas, be aggressive
with the tools that are currently available. This bill is meant to
supplement, not to be the sole effort we have in the type of commit-
ments we make to an energy policy in this country.
That is my message. Let’s figure out a way we can get this budg-
et more focused on what we need to do as we work to give you the
additional tools that are necessary. Thank you for your commit-
ment. I have a lot of confidence that what you are doing is going
to make a huge difference. We need to work together to get the job
done.
Thank you, Madam Chair.
Senator Boxer. Thank you very much.
Let me just thank everybody. I am very proud to say that Presi-
dent Obama today, in a speech, noted the markup in this Environ-
ment and Public Works Committee today. He said he believes that
a comprehensive piece of legislation is what needs to happen. I am
paraphrasing here. He said that is finally going to make clean en-
ergy the profitable kind of energy in America. Legislation that will
make the best use of resources we have in abundance through
clean coal technology, safe nuclear power, sustainably grown
biofuels and energy we harness from the wind, waves and the Sun.
So he noted then that we are having these hearings.
I just want to say to all of you, thank you so much, not only for
your eloquence today, but just for working with us these many,
many, many weeks and months to get to this stage. And there are
always naysayers when you are about to embark on change. But
positive change only comes with courage. And all of you have
shown that courage here today.
Thank you very much. We stand adjourned until 9:30 tomorrow.
[Whereupon, at 1 p.m., the committee was adjourned, to recon-
vene at 9:30 a.m. the following day.]
[An additional statement submitted for the record follows:]
267
Statement of Hon. Kirsten Gillibrand,
U.S. Senator from the State of New York
Thank you, Chairman Boxer, for your leadership and hard work on this very crit-
ical legislation.
I’d like to recognize my Chairman from the Senate Foreign Relations Committee,
Senator Kerry, who has joined us today, for his dedication to these issues.
I’d also like to thank our witnesses for taking the time to be here today to provide
their perspective and expert analysis of this legislation.
S. 1733, the Clean Energy Jobs and American Power Act, is the platform to move
America forward on a path to achieve energy independence, revitalize our economy
by creating green jobs here at home, and protect our environment from the threats
of global climate change.
I have heard from thousands upon thousands of New Yorkers of all age groups,
from Brookhaven to Brooklyn, to Buffalo, who have called, written, visited my of-
fices, and attended events to push for strong legislation that will transition our Na-
tion to a clean energy economy.
I am confident that the Clean Energy Jobs and American Power Act is the frame-
work that will do just that.
The passion and advocacy of my constituents have been invaluable leading up to
these important hearings, and I thank them for their continued support to see
strong climate change legislation across the finish line.
Over the course of these hearings I look forward to receiving testimony from wit-
nesses representing business interests and local governments from around the coun-
try, describing how this legislation will lead to American prosperity and a dem-
onstration of the kind of innovation and ingenuity that our country is built on.
In particular, I am interested in exploring a number of aspects of this legislation
that are critical to my constituents in the State of New York.
First, the Clean Energy Jobs and American Power Act includes a framework for
significant investments in carbon reducing transportation planning.
The development and expansion of mass transit systems are critical to New York-
ers who take one-third of the Nation’s mass transit rides and are vital to mitigating
America’s greenhouse emissions, 30 percent of which comes from the transportation
sector.
I’m also interested in the many ways that this legislation prioritizes and
incentivizes energy efficiency, which as we all know is one of the most reliable and
cost effective ways to reduce energy bills for consumers and cut harmful emissions.
S. 1733 includes a provision I authored, entitled the Green Taxis Act. This legisla-
tion will allow municipalities to set standards for emissions and fuel economy for
taxicabs using Federal minimums and predicated on the commercial availability of
vehicle technologies.
These provisions will be beneficial to many cities across the United States.
Replacing the current fleet of taxicabs on New York City streets with fuel efficient
vehicles would reduce greenhouse gas emissions by more than 296,000 tons, or the
equivalent of taking 35,000 cars off the road.
In addition, switching to fuel efficient vehicles would save each driver an average
of $4,500 annually in gas costs and reduce the upward pressure on passenger fares.
As I have stated in previous hearings, one area that is of vital concern to me is
providing effective oversight for the carbon market created by this legislation.
Ensuring that we have an active carbon market that allows for the type of
customization that end users need in order to finance a new clean power facility,
large scale solar or wind project, or international reforestation project is central to
this legislation’s success.
I look forward to working with my colleagues, Senators Baucus and Klobuchar
and Chairman Lincoln in the Agriculture Committee, as we engage in comprehen-
sive market reform that will set a framework for how carbon markets are regulated
to protect consumers from market manipulation while facilitating investment in
emissions reductions.
I am particularly interested in the provisions in this legislation that will allow
our farms and forests to engage in activities that have real, measurable benefits in
emission reductions.
Ensuring that New York’s dairy farms and private forest lands can participate in
activities that help us reach our climate goals is important to me.
Just as important as what is in this legislation, is what is not.
S. 1733 does not include provisions that were part of the House passed version
that I believe are detrimental to reaching the goals of comprehensive climate change
legislation.
268
The Clean Energy Jobs and American Power Act preserves Clean Air Act author-
ity to regulate the Nation’s oldest and dirtiest coal plants.
These protections are critical to New Yorkers, as we are on the receiving end of
air pollution from many of these plants — contributing to acid rain, harming natural
resources such as the Adirondacks, increasing contamination in our waterways, lim-
iting the number of fish we can eat, and increasingly growing asthma rates that
raise our health care costs.
The Clean Energy Jobs and American Power Act will lead to long-term economic
prosperity, energy security, and the protection of our environment for future genera-
tions.
Chairman Boxer, I want to thank you, my colleagues on the committee, and the
staff for all of their hard work on this legislation.
[Additional material submitted for the record follows:]
269
Statement For the Record
Secretary Shaun Donovan
Secretary of Housing and Urban Development
Before The
Committee on Environment and Public Works
United States Senate
October 30, 2009
Chairwoman Boxer, Ranking Member Inhofe, and members of the Committee, I appreciate this
opportunity to submit a statement for the record on the critical role of and potential impact of
climate change on our cities, metropolitan areas and rural communities. I would like to
commend you. Senator Kerry and your colleagues for the important work that you have
undertaken with S. 1733, the Clean Energy Jobs and American Power Act, to improve our
nation’s competitiveness in the w'orld, reduce our impact on climate change, and ensure
America’s prosperity in the 21 st century. This bill represents an important first step toward
passage of comprehensive energy and climate legislation in the Senate.
The Department of Housing and Urban Development has a strong interest in the outcome of this
important legislation. The built environment is now universally recognized as a significant
source of greenhouse gas emissions, and an important part of the solution to solving the critical
environmental and economic challenge of our time: global warming.
In recent years, we have made great progress in our understanding of the sources behind carbon
emissions. As the American people are well aware, transportation accounts for 28 percent of all
greenhouse gas emissions according to EPA’s inventory of green house gas emissions. But
most people would be surprised to learn that commercial and residential buildings account for
almost 40 percent of total emissions. 1 Housing is a significant source, accounting for more than
1 U.S. Department of Energy, 2008 Buildings Energy Data Book, Table 1.4.1, Carbon Emissions for U.S Buildings by
Year {39% of total). Table 2.4.1, Carbon Dioxide Emissions for Residential Buildings (21% of total), Table 3.4.1,
1
270
one half of emissions associated with buildings, in part because of large transmission losses in
the residential sector.
And it’s not just emissions from buildings, but also the location of the buildings themselves that
contribute to greenhouse gas emissions. Driven in part by the advent of the automobile, as well
as the availability of low-cost fuel, we have seen an explosion of dispersed development in our
metropolitan areas, with increasing numbers of families moving further out from our urban
centers in search of affordable housing. In many cases the result has been dramatic increases in
vehicle miles traveled, and significant increases in carbon emissions. So it is now clear that the
built environment - how and where we build - will be a key element in any effort to address
carbon emissions and climate change.
But this is not just an environmental issue: it is also about the health and economic vitality of our
nation’s cities, counties and rural communities. While suburban and exurban growth have
provided opportunities for millions of Americans, and in many cases has served them well, we
also see families struggling with long commutes to work, increasing dependence on the car for
most of their travel, and a growing share of their household budgets devoted to transportation
expenditures - in many instances, significantly reducing the housing affordability gains.
For all our housing challenges today, we now see that that the goal of a “decent home for every
American” can therefore only be achieved in the broader context of the dynamic changes that
have been taking place in cities, suburbs and metropolitan regions. The average American
household now spends 34 percent of their annua! budget on housing and 1 S percent on
transportation. More than half of their budgets are wrapped up in these two expenses alone.
For low-income working families, the impact is particularly serious - with transportation
representing almost a third of their costs. The extremes can be eye-opening - the average
Houston-area household spends over $1 1,000 per year on transportation. For these families, the
expense of transportation poses a particular burden. And in many metropolitan areas, working
families are spending more on transportation than on housing.
Carbon Emissions for Commercial Buildings (18% of total). Total excludes emissions from industrial buildings. Note
that EPA's 2009 Inventory of Greenhouse Gas Emissions - Fast Facts shows a somewhat lower share for buildings
(34.7%).
2
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This mismatch between good housing choices and good transportation choices is particularly
acute in metropolitan regions - which have increasingly become the engines of America’s
growth. These metropolitan regions look very different from those that existed in the mid-1960’s,
when HUD was created and much of our transportation system was being built. The populations
of these areas and employment opportunities available in them are now widely dispersed, with
only 22 percent of the jobs in the top metropolitan areas located within 3 miles of the central
business district.
Fortunately, the two criteria for successful and sustainable urban and metropolitan growth are
now well-known: location efficiency and energy efficiency , and there are several important
elements of the bill that address these goals. Communities across the country are adopting these
elements as central components of alternative housing, land use and transportation plans - with
promising and encouraging results.
In order to lower carbon emissions in the transportation sector, a “four legged stool” will be
needed: one leg related to vehicle fuel efficiency; another to the carbon content of the fuel itself,
one for vehicle and system operations, inclusive of traveler information and intelligent highway
systems; and a fourth for the amount of driving or vehicle miles traveled (VMTs). It is this last
leg, which has generally received less attention, where location efficiency can play a significant
role. We cannot afford to see projected fuel economy gains erased by continued growth (at
current rates) of VMTs, which according to the Energy Information Administration’s 2007
Annual Energy Outlook is projected to grow by 59 percent by 2030, compared to only 23 percent
population growth, and a 12 percent gain in fuel economy over the same period. 2
Preliminary models for California's compliance with A.B. 32 greenhouse gas reduction goals,
show that there are huge carbon reduction gains to be made by encouraging more compact,
location efficient building, with good access to public transportation, preferably in existing
communities. Alternative growth scenarios for the Salt Lake City region through the Envision
Utah plan show similar reductions. Local plans, such as Chicago’s Climate Action Plan, and
New York's PlanNYC 2030 show that carbon emissions can be reduced by adopting location-
and energy- efficient building practices and policies. In Atlanta, performance data for Atlantic
2 Energy information Administration, Annual Energy Outlook, 2007
3
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Station, a mixed-use transit-oriented redevelopment of an abandoned steel mill site, show that
residents drive an average of 9 miles per day, in stark contrast to a regional average of more than
30 miles per day - exceeding initial projections of a 36 percent reduction in vehicle miles
traveled and emissions compared to conventional development. 3
These local projects point to the need to coordinate federal action across agencies to ensure that
location and energy efficiency are embedded in federal programs and policies as well. I have
joined with my counterparts at the Department of Energy, the Department of Transportation, and
the Environmental Protection Agency, as well as other agencies, to ensure that, going forward,
this approach is followed.
In the building sector, we have made a strong commitment to energy efficient green building in
spending our Recovery Act dollars. Some $4 billion in Capital Fund dollars are going to public
housing authorities for energy efficiency and other upgrades, including $600 million specifically
targeted to high performing and energy efficient carbon reduction projects. Another $250
million is being provided for green energy retrofits in multifamily housing, and additional funds
are being spent on energy efficiency through our Native American programs, as well as through
the Neighborhood Stabilization Program (“NSP2”), both of which have strong incentives for
energy efficiency and green building. Looking ahead, our FY 2010 budget proposal includes a
$100 million Energy Innovation Fund that will help catalyze a home energy retrofit market
through innovative public and private sector financing, and through re-engineering FHA energy
efficient mortgages.
We have also formed a new Partnership for Sustainable Communities with DOT and EPA that
will, for the first time, ensure that housing and transportation planning and resources are
coordinated to support more compact, mixed use development, in proximity to a broad range of
transportation choices that will yield reductions in carbon emissions. Our agencies have adopted
a set of shared sustainability principles, that I believe represent an important new playbook for
federal investments and policies that impact land use, transportation, housing and the
environment in our cities, suburbs, counties and rural communities.
3 Reid Ewing et al. Growing Cooler, the Evidence of Urban Development and Climate Change.
4
273
We are moving to implement these principles through our Fiscal Year 2010 budget request,
which includes several proposals that support our vision of sustainable growth, including funding
to support a new generation of integrated land use, transportation and environmental planning at
the metropolitan and regional level, as well as in rural communities.
Building on these partnerships and these coordinated strategies, we believe climate change
solutions can be achieved through smarter place-based development. HUD in partnership with
EPA, DOT and DOE is poised to assist states and municipalities to help develop and review'
carbon reduction plans. This is consistent with, and will build on, the strong partnership that we
have already established with these agencies through our Partnership for Sustainable
Communities.
Thank you for your attention and we look forward to providing the Committee with additional
information or input as you move ahead in your deliberations.
5
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STATEMENT FOR THE RECORD OF
GARY F. LOCKE
SECRETARY OF COMMERCE
BEFORE THE
COMMITTEE ON ENVIRONMENT AND PUBLIC WORKS
UNITED STATES SENATE
OCTOBER 27, 2009
Chairwoman Boxer, Ranking Member Inhofe, and members of the Committee, 1 appreciate this
opportunity to submit a statement for the record on S. 1733, the Clean Energy Jobs and
American Power Act, and the Department of Commerce’s role in fostering America's transition
to a new clean energy economy. I am pleased that the Senate is moving forward in its
consideration of this important bill, and vvant to thank Senator Kerry and Chairwoman Boxer for
their leadership and hard work on this legislation.
Home to world-class climate scientists, economic development experts, and trade and investment
specialists, the Department of Commerce is uniquely situated to help unleash the economic
opportunity presented by America’s transition to cleaner sources of energy. For the past one-
hundred years, American businesses have experienced unprecedented growth. Throughout that
period, fossil fuels were available at low costs, and the greenhouse gas externalities associated
with using fossil fuels were not addressed. Unequivocally, that business environment has
shifted. The methods by which we produce and consume energy are environmentally
unsustainable and pose a risk to our nation's security and stability. The transition to a clean
energy economy should help to mitigate many of the consequences of climate change, and
would also be an engine of job creation and economic growth for decades to come.
Let’s be clear. American businesses are stepping up to the challenges posed by climate change -
developing innovative solutions to reduce greenhouse gas emissions, utilize energy more
efficiently, and adapt to some of the climate changes already occurring. For example, in 2007,
275
not one U.S. company was listed in the top ten global solar companies. Today, First Solar, based
in Tempe, AZ, is the largest solar company in the world.
But businesses are not investing in clean energy for only altruistic reasons. They know
international competition for the clean energy market - and the good jobs it can provide - is
fierce. 1 am not able to be with you in person because 1 am co-chairing the 20th session of the
U.S.-China Joint Commission on Commerce and Trade (JCCT) in Hangzhou, China. China is
currently the second largest energy consumer behind the United States, and China’s demand for
energy continues to increase exponentially. As such, the Chinese market presents tremendous
opportunity for U.S. clean energy businesses. To capitalize on this opportunity, just this week,
the Department of Commerce facilitated a Memorandum of Understanding (MOU) between the
U.S. Trade and Development Agency and China’s Ministry of Commerce to support the U.S.-
China Energy Cooperation Program (ECP), an innovative new public-private partnership that
will deploy the expertise of U.S. companies to help develop clean energy solutions in China.
But, we cannot ignore the race to lead in this competitive market. China is investing more than
$12 million an hour in clean energy and efficiency. These investments are not just to meet its
own domestic energy needs and climate challenges, they are designed to turn China into the
global destination for clean energy innovation. The Chinese government is supporting the
development of clean energy and energy efficiency industries to meet the demands of the world.
The United States must step up if we do not want to witness the capital, the businesses and the
good-paying jobs associated with the clean energy economy ending up overseas rather than in
communities across America.
As Secretary of Commerce, I speak daily with business leaders, innovators and entrepreneurs
eager to capitalize on the opportunities presented by clean energy but stymied by the
uncertainties in the marketplace. Too many companies and entrepreneurs and investors are
sitting on the sidelines because of the lack of certainty in U.S. policy. The Congress needs to
pass energy and climate change legislation as soon as possible to provide that certainty. The
longer the United States waits, the bigger the headstart other countries will have in establishing
dominant clean energy and energy efficiency industries to serve the world.
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Just last week, 1 hosted approximately 100 clean energy business leaders at the White House for
a discussion on American competitiveness in the clean energy economy. We heard from a
Michigan company that partners with the Department of Commerce's Sustainable Manufacturing
Initiative to help manufacturers become more energy efficient and reduce their power costs.
And, we heard from the CEO of Easy Energy based in Welcome, Minnesota, how a modular
ethanol production system could translate renewable energy into economic opportunity for rural
communities. The conversation that ensued was lively but the message was clear: American
business needs proper market incentives that encourage long-term investment in clean energy.
We need comprehensive energy legislation to send a signal to private capital that it is safe to
invest for the long-term in clean energy technologies and compete with the rest of the world in
this area. To support the creation of good, well-paying jobs in this new economy, we also need
to start training our workers now. Finally, we need comprehensive energy legislation to begin to
address the potential for environmental damage that will severely and negatively impact the
business environment if left unchecked.
To be successful in this endeavor, we need not only to give businesses the certainty of a coherent
national framework, we must be sure this framework is built on the underpinnings of sound
climate science. We must also deliver timely and reliable climate information to aid public and
private sector decision-makers in making sound economic and social choices. That is where the
Department's National Oceanic and Atmospheric Administration (NOAA) is indispensable.
NOAA is one of the world’s leaders in providing the scientific understanding of climate change
and its impacts. NOAA’s broad climate mandate was established in 1978, and its capabilities
span operational climate observing networks, global greenhouse gas monitoring, climate
predictions and projections, climate research and climate data stewardship. With these
capabilities, and in partnership with other Federal agencies, NOAA continues to provide
successful leadership and support to domestic and global scientific assessments of climate
change science and impacts, including the recent U.S. Climate Impacts report and those of the
U.S. Global Change Research Program and the Intergovernmental Panel on Climate Change.
NOAA is responsible for monitoring and predicting global and national climate conditions.
NOAA’s climate data provide information about changes and variations in climate dating back
3
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many decades to hundreds of thousands of years. These data are critical to predicting and
projecting future climate using some of the world’s best climate models.
NOAA also monitors the carbon cycle in the atmosphere and oceans, and has been doing so for
40 years, taking observations on the ground, under the sea, and in space. NOAA’s
measurements and modeling of carbon dioxide and other greenhouse gas concentrations in the
atmosphere are among the most comprehensive in the world - and are widely considered among
the best available modeling of carbon sources and sinks. These measurements are also
fundamental to understanding and monitoring ocean acidification.
This information is not merely of academic interest. These measurements will play an important
role in verifying the effectiveness of our domestic and international policies through independent
verification of bottom-up emissions - from both domestic and international sources - and allow
us to understand whether emissions reductions are having their intended effects on our climate.
In addition, the Department’s National Institute of Standards and Technology (NIST) supports
climate research and monitoring systems by providing the traceable measurements necessary to
ensure accuracy and comparability. NIST also has programs aimed at improving industrial
processes to reduce carbon at the source. For example, NIST focuses on documentary standards,
test beds for developing new and existing technology, and testing and verification programs.
More and more, decision-makers from the private and public sectors are demanding improved
information to understand the changing climate, impacts to the economy and the environment,
and emerging opportunities. For example, until now, the Nation’s systems and infrastructure for
water, energy, transportation, agriculture, and other sectors have been designed and built based
on knowledge about local conditions and our understanding of the past. As climate changes,
much of this infrastructure will become obsolete unless it is reconfigured in light of new patterns
of wind, water, temperature and other factors.
To bridge climate science and these needs of decision makers now and in the future, NOAA,
through partnerships and user engagement, is continuing to lead the way by providing an
evolving suite of climate information and services to other federal agencies, state and local
governments, and the private sector as they make decisions about adjusting to climate change.
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For example, the climate data from NOAA’s air freezing index program provides information to
allow building foundations to be more economically constructed, reducing the materials costs of
the U.S. construction industry by approximately $300 million per year. (Economic Value for the
Nation , U. S. Department of Commerce, National Oceanic and Atmospheric Administration,
National Environmental Satellite, Data, and Information Service, September 2001 .)
To respond to these demands for climate information, our national climate policy should include
the establishment of a National Climate Service. A national climate service should provide
credible and authoritative climate information and services across sectors and geographic regions
to assist the Nation in making informed decisions related to climate change mitigation and
adaptation.
Chairwoman Boxer, Ranking Member Inhofe, and members of the Committee, thank you for
your attention and the Department of Commerce looks forward to providing the Committee with
additional information or input as you move ahead in your deliberations.
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flERICANS
OTAX REFORM
Testimony Submitted for the
Full U.S. Senate Environment and Public Works (EPW) Committee hearing entitled,
“Legislative Hearing on S. 1733, Clean Energy Jobs and American Power Act”
Tuesday, October 27, 2009
My name is Grover G. Norquist, and I am the founder and President of Americans for Tax
Reform. ATR was founded in 1985 at the request of President Ronald Reagan and serves as a
non-partisan organization that opposes any and all tax increases.
I would like to thank Senator David Vitter (R-LA) and his office for introducing my testimony in
the Congressional record for this hearing. The Cap and Trade legislation this Committee is
considering is being sold as an attempt to control the climate; however there is no conclusive
proof that it will have any effect. Rather there is considerable evidence that this legislation will
have a disastrous economic effect on the country'. This proposal, S. 1733, the “Clean Energy Jobs
and American Power Act,” will negatively impact the economy, hurt families, and kill jobs. It will
also make the United States less competitive in die global marketplace while allowing other
countries take the lead with an unrestrained economy.
A recent Freedom of Information Act (FOIA) request, issued by the Competitive Enterprise
Institute (CEI), to the U.S. Treasury' Department reviled the government’s internal reports
estimate a cap and trade program will cost between $100 to $200 billion dollars in new taxes per
year. This is the equivalent of a hike in personal income taxes by about 15% and the average
American household would pay an additional $1,761 a year. 1 Another study by The Institute for
Energy’ Research (IER) found that Waxman-Markey will increase taxes on electricity’ from coal
and natural gas-fired power plants by $1 billion. 2
Americans will also feel increased pain at the pump as a result of this legislation. A study by
Senators Kay Bailey Hutchinson (R-TX) and Kit Bond (R-MO) found that the Waxman-Markey
bill will result in a $3.6 trillion gas tax. That breaks down to an additional $2.0 trillion tax on
gasoline, a $1.3 trillion tax on diesel fuel, and a $330 billion tax on jet fuel. 3
These massive new taxes on energy’ producers and every American family will be far more
destructive to those in the lower and middle class. On September 12, 2008, then candidate-
Obama said, “I can make a firm pledge. Under my plan, no family making less than $250,000 a
year will see any form of tax increase. Not your income tax, not your payroll tax, not your capital
gains taxes, not any of your taxes.” However, later, President Obama said, “Under my plan of a
cap-and-trade system, electricity rates would necessarily skyrocket.” 4 The President’s own
Treasury- Department noted that the increase in rates would be the equivalent of a 15% personal
income tax increase by raising an estimated $100 to $200 billion per year.
1 McCulIagh, Declan, “Obama Admin: Can and Trade Could Cost Families SI, 761 A Year.” CDS News.
September 1 5, 2009. http://www.cbsnews.com/blogs/2009/09/15/taking_liberties/entry53 14040.shtml.
2 “The Other Half of Waxman-Markey: An Examination of the Non-cap-and-trade provisions.” Tile
Institute for Energy Research. October 12, 2009.
http://wvw.instituteforenergyresearch.org/2009/J0/12/the-other-half-of-waxrnan-markey-an-
examination-of-the-non-cap-and-trade-provisions/.
3 Hutchinson, Kay Bailey and Bond, Kit, “Climate Change Legislation: A $3.6 Trillion Gas Tax.” 2009
http://hutchison.senate.gov/resources/HutchisonBondGasTaxReport.pdf.
4 Borelii, Deneen, “Rising energy costs triggered by cap-and-trade will harm low-income workers in inner
cities.” The Baltimore Sun. October 22, 2009. http://www.baltimoresun.com/health/sns-
200910220803mctnewsservbc-capandtrade-minoriti,0,7394488.story.
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President Obama, not candidate Obama was right. Prices will skyrocket, and it will be those that
make less than the $250,000 he promised that will be harmed the most.
As the Hutchinson-Bond report explained, the average household spends five percent of its
annual budget on fuel costs. For most lower and middle class working families, gasoline is
necessary to get to work and make a living. These families also tend to have longer commutes
than the rich and will be hit harder by increased fuel costs. 5 6
The Institute for Energy Research has found that the Waxman-Markey bill will result in a $14
billion redistribution of resources from the poor to the rich. This is primarily because shareholders
and those involved in trading allowances will be in a position to make money, while those with
lower incomes will be paying for the increased taxes and costs/ 1
Increased burdens on lower class families will also come in the form of new regulations on home
sales. The Waxman-Markey bill contains 397 new regulations, one of which requires almost all
homes to undergo environmental inspections prior to sale. These inspections will increase home
prices, as additional inspections and repairs increase base prices. This cost increase is passed on to
the buyers making home ownership more difficult. This will also eliminate the “fixer-upper” type
homes upon which many low income buyers depend. Many low income families buy less-than-
perfect homes because they ate cheaper and they can perform needed repairs and improvements
themselves. If the home has to pass an inspection prior to sale, the seller will have to make all of
tire necessary improvements before selling the home. Tire cap and trade proposal considered
today will make home ownership nearly impossible for millions of Americans. 7 8 9
Beyond the direct economic impact of this energy tax, it will also dramatically change the
American way of life. Increased travel and commuting costs coupled with an increase in cost, to
heat and cool homes and keep the lights on means many families will have to make a major shift
in priorities. They will also have limited discretionary income for consumer purchases. Families
will be forced to live in smaller houses and drive smaller cars. Communities will be constricted
because of increased commuting costs, and people will have fewer employment opportunities/
Increased energy costs and regulator}- burdens are going to destroy jobs in America, sending them
overseas to countries like China and India. The Black Chamber of Commerce estimated cap and
trade would kill over 2.7 million jobs every year through 2030. lire Heritage Foundation
estimated 1.1 million jobs lost from 2012- 2030 and 2.5 million each year after that Even the
liberal Brookings Institution estimated 1.7 million jobs would be lost per year.'
5 Hutchinson, Kay Bailey and Bond, Kit, “Democrats' hidden gas tax: Extra $ 1 per gallon at the pump
will mean all pain, no gain.” The Washington Times. October 2 1, 2009.
http://www.washingtontimes.com/news/2009/oct/21/democraLs-hidden-gas-tax/7feaEbome_commentary
6 “Blockbuster Study: Working-Class Bears Burden of Cap-and-Trade.” The institute for Energy
Research. September 29, 2009. http://www.instituteforenergyrcsearch.org/2009/09/29/blockbuster-study-
working-class-bears-burden-of-cap-and-trade/.
7 Young, Ryan, “Cap-and-Trade Will Depress Home Prices.” Competitive Enterprise Institute. September
23,2009. http://cei.org/articles/2009/09/23/cap-and-trade-will-depress-horrie-priccs.
8 Franc, Michael, “Cap and Trade vs. the American Dream: The House’s bill is an economic disaster that
keeps getting worse.” The Heritage Foundation. May 22, 2009.
http://www.heritage.org/Press/Commentary/ed052209b.cfm.
9 Borelli, Deneen, “Rising energy costs triggered by cap-and-trade will harm low-income workers in inner
cities.” The Baltimore Sun. October 22, 2009. http://www.baltimoresun.eom/healtlvsns-
2009 1 0220803 mctnewsservbc-capandtrade-minoriti,0,7394488.story.
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We are told that these job loses will be offset with new “Green Jobs.” The Institute for Energy
Research has released a study about the “Green jobs” program in Germany, and found that not
only are these jobs costly, they are also unsustainable. Government subsidies for the solar industry
have had a net cost from 2000-2010 of $73 billion (US$) and wind subsidies have cost $28 billion
(US$). When compared to the US economy, which is five times die si 2 e of Germany’s, we can see
that it would cost us approximately half a trillio n dollars. The entire wind and solar industry is
dependent on government handouts including the “Green Jobs” we are told are created from this
scheme. The government must pay an estimated $240,000 (US$) for ever}' solar employee. As
soon as the government handouts go away for these jobs, so do the jobs. Not only do these new
jobs create a new class of people dependent on government welfare, they also kill productive
jobs. 1 " A Heritage Foundation study has estimated that net job losses, jobs that will be destroyed
even if we take the government-dependent “Green Jobs” into consideration, will be 1.145
million. 11
With a void in U.S. based jobs, and the global economy continuing their demand, these
manufacturing jobs will go to countries such as China who not putting economic-shackles
disguised as climate change legislation on their economies. While the U.S. is imposing higher taxes
and energy costs on its citizens and businesses, China is increasing its production and carbon
emissions. The result will be the US committing economic suicide while having no proven effect
on the climate.
As the United States considers economic destruction and China continues to prosper, what will
we gain for all of our sacrifice - increased job loss, higher energy costs and an increased burden
on already strained American families? Climatologists estimate that the cap and trade energy tax
this Committee will soon consider will at best lower the world-wide temperature by hundredths of
a degree by 2050 and no more than two-tenths of a degree by die end of die century. 1 '
On top of not reducing the temperature, it also won’t teduce our usage or dependency on fossil
fuels. In 2015, the US is expected to consume 127 billion gallons of gasoline. As a result of cap
and trade, by 2050 we would consume 100 billion gallons of gasoline. In 2015, however, we will
use 78 billion gallons of diesel fuel and 31 billion gallons of jet fuel. In 2050, we will use 118
billion gallons of diesel and 48 billion gallons of jet fuel. While gasoline consumption is expected
to slighdy decrease, diesel consumption will increase by 30 billion gallons, and jet fuel
consumption would increase by 17 billion gallons. 13 A recent Environmental Protection Agency
(EPA) analysis of the Senate Kerry-Boxer draft concluded that “average household consumption
[of energy] would be reduced by less that 1% in all years.” 14
10 “Strike Three: First Spain, Then Denmark, and Now Germany. . .” Institute for Energy Research.
October 19, 2009. http://www.instituteforenergyresearch.org/geTmany/Germany_Study_-
_Fact_Sheet_(Final_Version).pdf.
11 Lieberman, Ben. “Green Job Subsidies Will Destroy Far More Jobs Than They Create.” The Heritage
Foundation. October 2, 2009. http://www.heritage.org/press/commentary/edl00209c.cftn.
12 Franc, Michael, “Cap and Trade vs. the American Dream: The House’s bill is an economic disaster that
keeps getting worse.” The Heritage Foundation. May 22, 2009.
http://w w w. heritage.org/Press/Commentary/ed052209b .eftn.
13 Hutchinson, Kay Bailey and Bond, Kit, “Democrats' hidden gas tax: Extra $1 per gallon at the pump
will mean all pain, no gain.” The Washington Times. October 21, 2009.
http://www.washingtontimes.corn/news/2009/oct/21 /dernocrats-hidden-gas-tax/?feat=homecormnentary
14 “Boxer Releases Chairman’s Mark of Clean Energy Jobs and American Power Act.” U.S. Senate
Committee on Environment and Public Works. October 23, 2009.
http://epw.senate.gov/public/index.dfn?FuseAction=Majority.PressReleases&ContentRecord_id= ; 8469lb
8e-802a-23 ad-4728-e60dc8d50fea.
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fn
I agree with the New York Times reporter John M. Broder who wrote, “Cap and trade. . . is almost
perfectly designed for the buying and selling of political support through the granting of valuable
emissions permits to favor specific industries and even specific Congressional districts.”' 5
In conclusion, what is the real purpose of this legislation? It will not create jobs; in fact it will
destroy jobs and cripple the economy. It will also not help the environment or reduce our
dependency on foreign oil. It will raise taxes and energy costs on every American family and force
more jobs to our economic competitors. We believe in an “all of the above” energy approach that
incorporates a diverse blend of energy sources without raising taxes and/or increasing the
regulatory burden on businesses and without growing the size and scope of the federal
government. Thank you.
15 Broder, John M. “From a Theory to a Consensus on Emissions.” The New York Times. May 16, 2009.
http;//www.nytimes.com/2009/05/1 7/us/politics/l 7cap.html.
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Testimony in Support of Renewable Bio-gas Market Development to
Reduce Greenhouse Gas Emissions and Create New Green Jobs
To the Senate Environment and Public Works Committee
Submitted by Gas Technology Institute
10 / 27/09
GTI would like to thank the Chairman, ranking member and the Committee for this opportunity
to provide scientific and other information regarding the benefits of renewable bio-gas. GTI is a
non-profit research and development (R&D) organization focused on increasing energy supply,
enhancing the reliability and safety of energy delivery; and ensuring energy is used in the most
efficient and environmentally responsible manner.
We have been developing energy-related technologies for over 60 years. Some notable GTI
innovations you may be familiar with are the phosphoric acid fuel cell and the high efficiency
natural gas furnace, GTI is also a leader in the development of unconventional natural gas
resources, including shale, tight sands, and coal bed methane, which now account for over 40
percent of all domestic natural gas supply.
In addition to research related to natural gas, one third of the organization's R&D portfolio is
focused on renewable energy, in technologies such as biomass gasification and pyrolysis for
liquid fuels production; anaerobic digestion for biogas and renewable power; and hybrid solar
thermal/natural gas equipment for residential and commercial markets. GTI is active in the
development and deployment of technologies suitable for the production and clean-up of
renewable bio-gas.
Currently, elected officials, business representatives, energy and environmental groups and
many others are discussing options to reduce greenhouse gas emissions (GHG's). It is seen by
many as the primary means to address climate change, which as an international issue has
produced a variety of approaches and many different international, national, regional and local
designs to reduce GHG's.
In the US, one primary approach has been the development of a renewable liquid
transportation fuels and renewable electricity market. Incentivizing these renewable markets,
especially in the case of liquid transportation fuels, has also been a means to increased national
energy security.
One new emerging conversation is how do we bring renewables into the 23% of our nation's
energy use which is represented by natural gas? The nation has invested hundreds of billions of
dollars to deploy our pipeline transportation system which is extremely efficient at delivering
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natural gas from the "wellhead to the burner tip". Approximately, 91% of the primary energy is
delivered to the end-user. From "source to site", there is no other fuel that is delivered with
anything close to that type of efficiency as a fungible, useable energy product.
Renewable bio-gas(produced from renewable bio-mass, livestock manure and landfill gas) can
be upgraded to be interchangeable with natural gas and purchased like other natural gas
resources for energy consumption by consumers that can be used in transportation, industry or
in homes and businesses. Because both the production and delivery of renewable bio-gas are
very efficient, when compared to renewable liquid bio-fuels and electricity made from
renewable bio-mass; renewable bio-gas is an excellent choice to incentivlze. This production
and delivery efficiency means less of the original renewable feedstock will be needed to provide
an equal amount of useable energy to a consumer, when compared to other renewable
options.
Growth in the production and use of renewable bio-gas can impact almost all end-use sectors
and provide a fuel that can reduce GHG emissions in transportation, industry, residential and
commercial applications as well as electricity production. Renewable bio-gas can also easily be
stored underground, like natural gas for future use, which makes it different then almost every
other renewable energy option.
CLIMATE CHANGE LEGISLATIVE LANGUAGE
The Climate change legislation that has passed the US House of Representatives, however,
compels a Natural Gas local distribution company (LDC), which is regulated under the bill, to
hold allowances for any gaseous fuel within in its delivery system co-mingled with natural gas;
even if produced from renewable resources. If this specific language becomes law, it will
diminish market pull for the renewable bio-gas product and creates a disincentive for natural
gas LDC's to accept the fuel into their systems. This in turn will dramatically reduce the
opportunity for most consumer sectors to use the fuel because only projects where bio-gas
production and it use are co-located will be viable under climate change legislation. This is not
as large an opportunity to reduce GHG emissions compared to every natural gas meter to
becoming a "renewable bio-gas spigot" for a variety of consumers that rely on natural gas.
On top of the following page are the suggested language changes that will help recognize the
GHG reduction value of renewable bio-gas. The suggested changes are in red bold.
Changes to ACES 2009 to Exclude Renewable Bio-gas
The legislative language should be changed in two instances so that the emissions resulting
from the combustion of renewable bio-gas by the customers of natural gas local distribution
utilities do not require an emissions allowance:
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ACES S311 (Enrolled House Bill page 738)
§722(b)(8) NATURAL GAS LOCAL DISTRIBUTION COMPANIES.— For a covered entity
described in section 700(1 3)(J), 1 emission allowance for each ton of carbon dioxide equivalent
of greenhouse gas that would be emitted from the combustion of the natural gas, and any other
gas meeting the specifications for commingling with natural gas for purposes of delivery (with
the exception of gas derived from renewable biomass, landfills, or wastewater treatment
sludge), that such entity delivered during the previous calendar year to customers that are not
covered entities, assuming no capture and sequestration of that greenhouse gas.
ACES §312 (Enrolled House Bill page 851 1
Clean Air Act §700(6)(c) For a natural gas local distribution company described in paragraph
(13)(J), greenhouse gases that would be emitted from the combustion of the natural gas, and any
other gas meeting the specifications for commingling with natural gas for purposes of delivery
(w ith the exception of gas derived from renewable biomass, landfills, or w astewater
treatment sludge), that such entity delivered during the previous calendar year to customers that
are not covered entities, assuming no capture and sequestration of that greenhouse gas.
With the changes above, the opportunity for a robust renewable bio-gas market to develop will
be greatly increased and all consumers of natural gas can look forward to the potential of a
renewable option being available in the near future.
RENEWABLE BIO-GAS TAX INCENTIVES
United States policy to incentivize the production and use of renewable liquid transportation
fuels and renewable electricity is well documented throughout both State and Federal law.
Currently, however, no incentive exists for the production of renewable bio-gas which can
reach a large base of consumers as discussed earlier and can provide dramatic GHG emission
reductions.
The 3 exhibits that follow provide information regarding current opportunities that exist in the
Congress to incentivize the production of renewable bio-gas, the potential for GHG emission
reductions and benefits to the US economy and the environment. Also provided is a letter
outlining the support of almost 80 companies for the passage of renewable bio-gas production
incentives.
Thank you for this opportunity to provide testimony to the Committee.
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EXHIBIT 1
Renewable Bio-gas PTC - Talking Points
The Renewable Biogas PTC proposed by Senator Nelson (S-306) and Congressman Higgins (HR 1158)
addresses environmental issues, national energy security and the economy by creating jobs and
providing new income streams for livestock producers, food processors, bio-gas project developers, and
agri-businesses. This tax credit seeks to provide the necessary incentives to turn wastes into energy:
from livestock manure, and cellulosic feed-stocks to landfill and sewage wastes.
• The job creation potential of renewable bio-gas gas projects is significant. It has been
estimated 1 2 that 550-860 jobs per billion cubic feet (Bcf) of useful renewable bio-gas can be
created.
• Given a market potential of 1 quadrillion Btu's, or about 1,000 Bcf, the near term job creation
potential would be in the range of 550,000-860,000 new jobs. Longer term an additional 1
quadrillion Btu’s could be produced adding an additional 550,000 to 860,000 jobs to the
economy.
• This PTC can lead to 47.9 million metric tons (MMTs) annually of C02 reductions from
animal waste, 57.5 MMTs annually from cellulosic materials and 21.5 MMTs annually from
landfills. This total of 127 MMT's annually is the equivalent of taking 25.4 million cars off the
road.
• The California Air Resources Board (CARB), in a 2009 report, has determined that bio-
methane is the lowest carbon transportation fuel available today.
• Every state in the Union has the resources to participate in the production of renewable gas
with the potential to create new green jobs in every state.
• Bio-gas from renewable sources including animal manure, forest residues and agricultural
wastes can be produced at efficiencies ranging from 60~70% 1 2 3 , thus using our renewable
resources in a very responsible and efficient manner.
• All of the technology components to produce renewable bio-gas from this variety of sources
exist today.
• Renewable bio-gas production in digesters provides the agricultural sector additional
environmental benefits by improving waste management and nutrient control and
dramatically reducing carbon emissions through the control of methane by placing manure
in enclosed vessels instead of open lagoons.
• Another benefit of generating renewable bio-gas is that it can be upgraded and delivered to
customers via an existing U.S. pipeline infrastructure providing a renewable option to 25% of
our energy market which has few renewable options today.
• Renewable bio-gas upgraded and delivered through the pipeline system can provide a
renewable option for heating homes and businesses throughout the country and for many
heavy industries in urban areas as well as in transportation and for electricity production
1 Socioeconomic Drivers in implementing Bio-Energy Projects. Domas et at, Science Direct,26 (2005) 97-106
2 http://peakenergy.blogspot.com/2008/03/banana-mettiane-powered-cars-pig-poo.htmi
3 http://www.sgc.se/Rapporter/resources/seminar_screen.pdf. p. 305.
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thus reducing carbon emissions - while creating new rural green jobs to produce renewable
bio-gas.
While wind, solar, biomass and geothermal remain absolutely vital, we are missing a substantial
opportunity to turn wastes and waste problems into energy and energy solutions that help the
environment and the economy. Through the production of renewable bio-gas, and upgrading to
pipeline quality, we can provide a renewable option for natural gas, which represents 25% of our U.S.
energy use.
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EXHIBIT 2
Renewable Bio-gas Carbon Emissions Reductions Benefits
There are several broad categories of renewable gas including: (1) biomass derived; (2) landfill
gas; and (3) animal (livestock) waste derived. Each of these renewable gases can provide for
substantial reduction in carbon emissions. However a new federal production tax credit (PTC)
for renewable gas is needed to make many such projects economically viable particularly during
this time of low energy prices for competing fossil fuels like natural gas.
Estimated COz reduction benefits achievable, based on proposed bio-gas PTCs in the Nelson
and Higgins' bills are conservatively 127 million metric tons annually. This is the equivalent of
taking 25.4 million cars off the road.
Below is an analysis of the levels of C0 2 reductions for the production and use of each type of
renewable derived bio-gas described above, followed by a synopsis of the potential total
national C0 2 reduction benefits.
Animal Waste
Animal waste includes the liquid and solid excretions of virtually any type of livestock, and can
also include sludge from water treatment facilities. The decomposition of these wastes
produces methane and other gases. By gathering these wastes and accelerating their
decomposition in anaerobic digesters, the gases can be contained, and further processed into
high-methane-content gas. This gas can then be used to supplant other fuels for combustion
for heat or electricity generation. The productive use of these wastes is a force multiplier in
reducing GHG emissions. While the product gas does offset the use of natural gas in the 1:1
ratio described below for landfill gas and biomass gas, the elimination of the methane
emissions is even more compelling. One ton of methane (CH 4 ) is considered to have the
radiative forcing effect of 23 tons of C0 2 . One MMBtu of methane weighs 42.2 pounds.
Multiplying this by 23 gives a C0 2 equivalent (not released) of 970 lbs of C0 2 released for each
MMBtu of methane emitted to the atmosphere. To this must be added the 117 pounds per
MMBtu of C0 2 produced when natural gas is combusted.
Biomass Derived Gas
Renewable gas can be produced from a variety of biomass sources, including woody biomass
(i.e,, trees and forestry waste) and crop processing waste (e.g., corn husks/cobs). These input
materials are all carbon-based, and through the normal cycle of death and decomposition, or
destruction through combustion, the carbon is ultimately released into the atmosphere.
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uncontrolled and in gaseous form. By capturing and converting these wastes to high quality
gas, the carbon normally released by decomposition or open burning is eliminated. The result
is that instead of emitting CO 2 from the non-productive decomposition of the biomass,
gasification is done in a controlled and contained fashion. The useful gas produced then offsets
natural gas on a 1:1 ratio. Thus for every MMBtu of biomass gas produced, one MMBtu of
natural gas is not combusted.
Landfill Gas
Landfills of significant size are required by New Source Performance Standards (NSPS) to install
well fields to collect gases from decomposition; typically methane, CO 2 , and other minor
constituents. This use supplants the natural gas that would otherwise be used. As an example,
for each MMBTU of methane that is flared, 117 pounds of C0 2 are emitted. At the same time
for each MMBTU of natural gas combusted by a consumer, a similar 117 lbs of C0 2 emitted. By
cleaning up the landfill gas and using it to supplant natural gas, the 117 lbs of C0 2 that was
emitting twice, is now only emitted once.
Benefits of Renewable Gas
The U.S. EPA estimates that biogas levels of 96 billion cubic feet (Bcf) are technically feasible
using anaerobic digestion at 7,000 of our nation's dairy and swine farms. (There are over
65,000 dairy farms and another 65,000 pig and hog farms in the U.S.) With a PTC in place, all of
these 7,000 farms, over time, can be converted to renewable gas production economically.
Using a global warming potential for methane of 23 times CO 2 , this equates to 42.6 million
metric tons of C0 2 reductions per year. Additionally, another 96 Bcf of methane can be
displaced with combustion of renewable natural gas in place of natural gas for another 5.3
million metric tons per year for a total of 47.9 million metric tons annually of C0 2 reductions.
Additionally, because the EPA analysis doesn't account for a tax credit or the prospect of
connecting smaller farms with a pipeline gathering system, we believe conservatively a tax
credit could create thousands of more farms becoming economically and technically feasible to
produce renewable gas leading to the potential for a doubling of aforementioned C0 2
reductions.
Thermochemical gasification, in addition to the anaerobic digestion just discussed, opens up
the resource base to include cellulosic materials like forest wastes, woody bio-mass and crop
residues. The U.S. Energy Information Administration (EIA) in their Renewable Portfolio
Standard (RPS) analysis estimates that 2.2 quads of renewable gas could be produced from
biomass-related RPS facilities (not including the above anaerobic digestion). If we assume a
50% penetration for biogas to renewable natural gas through the PTC, or about 1.1 quads per
290
year of renewable methane produced and combusted, then another 57.5 million metric tons
per year of CO 2 can be avoided.
How many bio-mass gasification plants are required? If there are 137 2,000-ton-per-day
facilities, that will produce 1.1 quads of renewable gas per year. Additionally these gasification
facilities, due to the need for separation and capture of C0 2 to produce renewable gas, will be
carbon sequestration ready; so that in the future C0 2 can be placed in a pipeline and sent to a
sequestration site or used to support other C0 2 mitigation options like algae production.
There are about 3,000 landfills in the U.S and very few of these produce high BTU renewable
biogas because of the high costs of doing so. The EPA's Landfill Methane Outreach Program
(LMOP) estimates that 520 of these have the potential to produce biogas. The PTC will enable
these to be developed to produce renewable gas. The potential for these facilities is 1.08
Bcf/day, or 390 Bcf of renewable gas per year. This produces C0 2 savings of 21.5 million metric
tons per year from LFC sites.
Thus, a PTC can create a total C0 2 savings of 127 million metric tons per year.
HYPERLINK ”http://www. epa.gov/agstar/pdf/biogas%20recovery%20systems_screenres. pdf'
httD://www.eDa.gov/agstar/pdf/biogas%20recoverv%20svstems screenres.pdf
HYPERLINK "http://www.epa.gov/lmop/res/calc.htm" http://www.epa.gov/lmop/res/calc.htm
291
EXHIBIT 3
Renewable Bio-gas Production Tax Incentive Support Letter
October 6, 2009
The Honorable Max Baucus
Chairman
Finance Committee
U.S. Senate
Washington, DC 20510
The Honorable Charles B. Rangel
Chairman
Ways and Means Committee
U.S. House of Representatives
Washington, DC 20515
The Honorable Charles E. Grassley
Ranking Member
Finance Committee
U.S. Senate
Washington, DC 20510
The Honorable Dave Camp
Ranking Member
Ways and Means Committee
U.S. House of Representatives
Washington, DC 20515
The following companies and organizations recommend that Congress develop and pass
legislation providing a $4.27 per MMBTU tax credit for the production of renewable gas. The Biogas
Production Incentive Act introduced by Representative Higgins in the previous Congress (D-NY), with
original co-sponsors Rahm Emanuel (D-IL) and Devin Nunes (R-CA) would have established such a credit.
Representative Higgins has re-introduced his legislation this session along with Senator Nelson (D-NE).
We believe this tax incentive would lead to new green jobs and rural economic development.
The U.S. Congress has wisely supported the expanded use of domestic renewable resources
through a variety of tax incentives and other programs. Up to this point, Congress has focused primarily
on measures that support the production of renewable liquid transportation fuels or electricity. In the
U.S., however, natural gas represents 27 percent of the energy consumed.
Natural gas is the fuel of choice to provide residential and commercial heat for space and hot
water in most applications and is used to produce steam in a variety of commercial and industrial
applications. Natural gas is also the fuel that provides the energy to manufacture many industrial
products including aluminum, steel, glass, chemicals, fertilizer, and ethanol. Compressed natural gas can
also provide the fuel for light, medium and heavy-duty vehicles.
incentivizing the production of renewable gas (RG) from sources that include animal manure,
landfills, renewable biomass and agricultural wastes will support expanding the role of renewables into
this existing energy sector, where little opportunity exists today. It will also create another business
investment prospect for renewable project developers and the potential to expand rural economies
292
while supporting existing industrial jobs and dramatically reducing carbon emissions.
Please consider the following:
o RG is a versatile form of bio-energy. It can be used directly at the site of production, or
placed in the pipeline to support a variety of residential, commercial, industrial or
transportation applications.
o RG produced from renewable sources including animal manure, landfills, renewable biomass
and agricultural wastes can be produced at high efficiencies ranging from 60-70 percent.
Additionally, all of the technology components to produce renewable gas from this variety
of sources exist today.
o RG can be delivered to customers via the existing U.S. pipeline infrastructure.
o RG can provide a renewable option for many heavy industries, which could save existing
industrial jobs in a carbon constrained economy - while creating new rural green jobs to
produce RG.
o RG production in digesters provides the agricultural sector additional environmental
benefits by improving waste management and nutrient control.
The following companies and organizations urge your support of a $4.27 per MMBTU tax credit
for the production of renewable gas. We believe this is a fiscally responsible proposal that will spur new
gas production, create green jobs, expand the rural economy, increase energy independence and reduce
greenhouse gas emissions.
If you have questions regarding this request or would like further information please contact Lloyd
Ritter at (202) 215-5512 or lritter@greencapitol.net.
Thank you.
Companies and organizations in support are listed below.
As of 10/06/2009
AGL Resources
Atlanta, GA
American Biogas Company
Madisonville, KY
American Gas Association
Washington, DC
American Iron and Steel Institute
Washington, DC
Cayuga Renewable Energy LLC
Union 5prings, NY
Central Hudson Enterprises Corporation
Poughkeepsie, NY
Chattanooga Gas Company
Chattanooga, TN
Consolidated Edison Company of New York, Inc.
New York, NY
293
American Public Gas Association
Washington, DC
Andigen, LLC
Logan, UT
ASERTTI
Washington, DC
Atlanta Gas Light
Atlanta, GA
Atmos Energy
Dallas, TX
Beacon Generating
McLean, VA
BioEnergy Solutions
Bakersfield, CA
Bison Renewable Energy
Sioux Falls, SD
Business Council for Sustainable Energy
Washington, DC
Cayuga Marketing LLC
Union Springs, NY
Florida City Gas
Rockledge, FL
Gas Technology Institute
Des Plaines, IL
Genex Farm Systems
Melrose, MN
GHD, Inc.
Chilton, Wl
Green Capital
Sioux Falls, SD
Harvest Power, Inc.
Waltham, MA
tntermountain Gas Company
Boise, ID
Linde, Inc.
Murray Hill, NJ
Liquid Environmental Solutions Corporation
San Diego, CA
Mack Trucks, Inc.
Allentown, PA
Montauk Energy Capital
Pittsburgh, PA
National Fuel Gas Distribution Corporation
Williamsvilie, NY
National Grid
Waltham, MA
Council of Northeast Dairy Farmer Cooperatives
Alexandria, VA
Cygnus Energy
Skaneateles, NY
Dairy Business Association
Oneida, Wl
DTE Energy
Detroit, Ml
Elizabethtown Gas Company
Berkeley Heights, NJ
Elkton Gas Company
Elkton, MD
Energy Systems Group
Newburgh, IN
Environmental Intelligence, Inc.
St. Paul, MN
Environmental Power Corporation
Tarrytown, NY
Exelon Corporation
Washington, DC
Republic Services, Inc.
Phoenix, AZ
River Birch Inc.
New Orleans, LA
Sanimax
DeForest, Wl
Schmack BioEnergy
Cleveland, OH
SEMPRA Energy
San Diego, CA
Sequent Energy Management
Houston, TX
Southwaste Services, Inc.
Houston, TX
Spruce Haven Farm and Research Center
Union Springs, NY
StormFisher BioGas
Hartford, CT
Sustainable Conservation
San Francisco, CA
TECO-Peoples Gas
Tampa, FL
Terracastus Technologies
New York, NY
Think-21
New York, NY
294
National Milk Producers Federation
Arlington, VA
New Jersey Resources
Wall, NJ
NGV America
Washington, DC
NWNatural
Portland, OR
Organix, Inc.
Walla Walla, WA
Palmer Capital
Cohasset, MA
PG&E Corporation
San Francisco, CA
Phase 3 Renewables
Cincinnati, OH
RealEnergy, LLC
Yountville, CA
Recycled Energy Development
Westmont, IL
United Liquid Waste Recycling, Inc,
Clyman, Wl
Universal Entech, LLC
Phoenix, AZ
Virginia Natural Gas
Norfolk, VA
Volvo Group North America
Washington, DC
Waste Energy Solutions, LLC
Pittsburgh, PA
Waste Management
Houston, TX
Western United Dairymen
Modesto, CA
Ze-gen
Boston, MA
295
How the economic stimulus program and new legislation
can boost U.S. economic growth and employment
Robert Pollin, James Heintz, and Heidi Garrett-Peitier June 2009
Department of Economics and Political Economy Research Institute (PER!)
University of Massachusetts, Amherst
296
Center for American Progress
The Economic Benefits of
Investing in Clean Energy
How the economic stimulus program and new legislation
can boost U.S. economic growth and employment
Robert Pollin, James Heintz, and Heidi Garrett-Peitier
Department of Economics and Political Economy Research Institute (PER!)
University of Massachusetts, Amherst
Bracken Hendricks and Michael Ettlinger
Project Managers, Center for American Progress
June 2009
297
Contents
1 Introduction and summary
5 Understanding the economic stimulus program and new
dean-energy legislation
14 Creating $150 billion a year in dean-energy investments
21 Methodologies for estimating employment and GDP growth
27 Job creation through dean-energy investments
40 Forecasting the impact of a carbon cap on economic growth
46 Conclusion
48 Appendix 1: Technical methods
57 Appendix 2: The employment impact of clean-energy
investments across individual states
61 References
63 Endnotes
65 About the authors and acknowledgments
298
ntroduction and summary
Hie United States in the 21st century faces an enormous challenge — successfully manag-
ing the transformation from a predominantly carbon-intensive economy to becoming a
predominantly dean energy-based economy. The reality of global climate change due to
rising carbon emissions makes it imperative that the U.S. economy dramatically cut its
consumption of traditional fossil fuels, the primary source of carbon dioxide (CO.,) deliv-
ered into our atmosphere by human activity. Rising levels of C0 2 in the atmosphere is in
turn the primary cause of global warming.
This economic transformation will engage a huge range of people and activities. But there
arc only three interrelated objectives that will define the entire enterprise:
• Dramatically increasing energy efficiency.
• Dramatically lowering the cost of supplying energy from such renewable sources of
energy as solar, wind and biomass.
• Mandating limits and then establishing a price on pollution from the burning of oil, coal,
and natural gas.
It is crucial for economic policymakers and the American people to nnderstand the likely
effects of these three overarching objectives as much as possible. Specifically, we need to
gauge our success in curbing C0 2 emissions alongside the broader effects on the U.S. econ-
omy, particularly on employment opportunities, economic growth and peoples incomes.
This paper examines these broader economic considerations — jobs, incomes, and eco-
nomic growth — through the lens of two government initiatives this year by the Obama
administration and Congress. The first is the set of clean-energy provisions incorporated
within the American Recovery and Reinvestment Act, initiated by the Obama administra-
tion and passed into law by Congress in February. The second is the proposed American
Clean Energy and Security Act, co-sponsored by Rep. Henry Waxman (D-CA) and
Rep. Edward Markey (D-MA), which is now before Congress.
Our analysis in this paper shows that these two measures operating together can generate
roughly $ ISO billion per year in new clean-energy investments in the United States over
the next decade. This estimated $ 1 50 billion in new spending annually includes govern-
ment funding but is notably dominated by private-sector investments. We estimate this
1 Political Economy Research institute • Center for American Progress | The Economic Benefits of investing in Clean Energy
299
sustained expansion in clean-energy investments triggered by the economic stimulus
program and the forthcoming American Clean Energy and Security Act can generate a
net increase ofabout 1,7 million jobs. This expansion in job opportunities can continue
as long as the economy maintains a commitment to clean-energy investments in the $ 1 50
billion per year range. If clean-energy investments expand still faster, overall job creation
will increase correspondingly.
These job gains would be enough — on their own — to reduce the unemployment rate in
today’s economy by about one full percentage point, to 8.4 percent from current 9.4-percent
levels — even after taking into full account the inevitable job losses in conventional fossil fuel
sectors of the U.S. economy as they contract. Our detailed analysis, based on robust eco-
nomic-modeling methodologies that are explained in detail in the paper and in Appendix I,
beginning on page 48, calculates that roughly 2.5 million new jobs will be created overall
by spending $150 billion on clean-energy investments, while close to 800,000 jobs would
be lost if conventional fossil fuel spending were to decline by an equivalent amount. It is
not likely that all $ 150 billion in new clean-energy investment spending would come at the
expense of reductions in the fossil fuel industry. However, we present this scenario to estab-
lish a high-end estimate for reductions in conventional fossil fuel spending, and the net gains
in employment that will still result through spending $150 billion per year on clean-energy
investments. In appendix 2, we also present these figures on net job creation broken down
on a state-by-state basis for all 50 states and the District of Columbia.
The stimulus program enacted in February to help the economy recover from a deep
recession already in its 1 8th month includes a range of measures to begin building a clean-
energy economy. These measures indude:
• $24.4 billion in federal government spending to promote energy efficiency.
• $23 billion for transportation investments.
• $25.3 billion for renewable energy.
Some of this funding will be in 2010, but a significant amount will also spark new eco-
nomic activity between 2011 and 2014.
Congress still must pass the American Clean Energy and Security Act, or ACESA, and the
president must still sign it. But the legislation contains three broad categories of initiatives
that are unlikely to change in substance:
• Regulations aimed at promoting clean energy.
• A mandated cap on carbon emissions that will be phased in through 2050.
• Measures designed to assist businesses, communities and individuals successfully man-
age the transition to a clean-energy economy.
2 Political Economy Research Institute • Center for American Progress | Thft ik'cnomif; Bwieftts nHnw&lng sn Cfcan knergy
300
The general thrust of this forthcoming legislation and the dean-energy provisions within
the economic stimulus program is to promote energy effidency and renewable energy. Yet
as an economic stimulus program, ARRA operates through direct government spend-
ing and financial incentives to promote private investments in clean energy. In contrast,
ACESA will boost clean-energy investments mostly by private businesses, investors and
households through new regulations that encourage the clean and efficient use of energy
and discourage the use of high-carbon fuels. Many of the regulatory initiatives proposed
within the ACESA are not fully fleshed out within the legislation itself. As such, it is more
difficult to estimate their effects on overall clean-energy investments than is true with the
spending initiatives advanced by the ARRA.
In the following pages, this paper first examines the basic clean-energy features of the eco-
nomic stimulus program and the proposed ACESA. Specifically, we will detail the distinct
features of both measures and the ways in which they would operate in concert to encour-
age investments in dean energy and energy efficiency as well as discourage spending on
conventional high-carbon fuels.
We will then explain how ARRA and ACESA operating in tandem would create new
employment opportunities across the United States by spurring SI 50 billion a year
over the next decade in new clean-energy investments. Understanding how we calcu-
lated these investment levels over 10 years requires an understanding of the different
economic models available to analysts and why we chose a simple but reliable method
for estimating employment effects based on data generated by the U.S. Commerce
Department’s industrial census. We explain the reasons for our analytical decisions on
pages 15-20, beginning with how we estimated the effects on jobs of shifting spending
in the U.S. economy away from high-carbon fuels and toward clean-energy investments.
We will show why our simple approach offers a robust framework for understanding
how a shift in spending from conventional fossil fuels to clean energy generates a net
expansion of employment that will be sustained as long as the U.S. economy maintains
its commitment to clean-energy investments.
We then present our detailed employment estimates. Our key finding is that clean-energy
investments generate roughly three times more jobs than an equivalent amount of money
spent on carbon-based fuels. We consider some of the implications of this result, including
how a large-scale shift from conventional fossil fuels to dean-energy investments — on the
order of $150 billion a year — would affect conditions in the U.S. labor market.
Our paper then turns to the various economic models used to estimate the impact of a
carbon cap on the long-run growth trajectory of the U.S. economy. Our key finding: All
of the models, without exception, forecast that a carbon cap, such as that proposed in
ACESA, would have, at worst, a minimally negative impact on the U.S. economy’s long-
term growth path. Moreover, these models generate this basic finding without considering
some of the major ways in which clean-energy policies can stimulate economic growth.
3 Political Economy Research Institute • Center for American Progress | The Economic 3e nefits of Investing in Clean Energy
301
These include the expansion of employment opportunities itself, a reduction in the trade
deficit, promoting technological improvements and thus falling prices in renewable energy
sources, and reducing the negative impacts on economic activity of greenhouse gas emis-
sions and unmitigated global warming.
To be sure, any economic modeling effort that estimates changes in employment growth,
economic growth, and income growth will result in forecasts that are problematic by nature.
We make this clear in our paper wherever we rely on our own economic models and those
employed by others. But we also take pains to examine the relative strengths and weaknesses
of all the modeling approaches — including our own. This enables us to cross check our own
conclusions with those of other researchers to reach the most reliable possible understand-
ing of the overall impact of advancinga dean-energy agenda within the U.S. economy.
A Political Economy Research Institute • Center for American Progress ] i f -.c:vri: • of invest o<; :■ Wo Energy
302
Understanding the economic
stimulus program and new
clean-energy legislation
The dean-energy components of the American Recovery and Reinvestment Act pro-
grams and the entire American Clean Energy and Security Act now before Congress are
designed to transition our economy from its reliance on high-carbon fuels to one operat-
ing more efficiently on clean energy. Understanding the specific features of ARRA and
ACESA and how they will work in combination allows us to estimate the level of public-
and private-sector investments in dean energy. As we will demonstrate, the two programs
together could create $150 billion a year in new investment and 1.7 million net new jobs a
year — that is, 1 .7 million more jobs each year than would be the case without a $ 1 50 bil-
lion shift in spending from conventional fossil fuels to clean energy investments.
The economic stimulus program
There are three separate ways to break down the various spending categories on clean
energy within the $787 billion economic stimulus program that kicked in after the passage
of ARRA in February this year. The first is according to the specific categories of environ-
mental spending. The second is the financial mechanism for allocating the federal funds.
And the third is the amount of additional spending by state and local governments and
private businesses that are likely to result through the incentives offered under ARRA (see
Table 1 ). It is crucial to keep these distinctions clear, especially when we later consider the
impact of ARRA in conjunction with the types of measures proposed in the ACESA.
Categories of environmental spending
As Table 1 shows, total federal environmental spending in ARRA amounts to about
$100 billion, divided into nine categories: renewable energy, energy efficiency, trans-
portation, the electrical grid, nuclear decontamination, carbon capture-and-storage
technologies for fossil fuels, basic science, along with general categories '‘other" and
"government administration.” The four largest areas of federal spending are renewable
energy, energy efficiency, transportation, and the electrical grid, accounting for about
$86 billion of the $100 billion total.
5 Political Economy Research Institute • Center for American Progress | i he Economic Benefits of Investing in Often Energy
303
TABLE 1
Environmental spending through the ARRA
Billions of dollars
Type of funding
Direct public spending
Grants
Tax incentives
Loan guarantees
Bonds
Total
federal spending
Renewable energy
$2,5
$2.3
$16.0
$4.0
$0.6
$25.3
Energy efficiency
72
14.4
2.0
0
0.8
24.4
Transportation
0.6
20.1
2.1
0
0.3
23.0
Grid
6.6
4.4
0
2,0
0
13.0
Nuclear decontamination
6.0
0
0
0
0
6.0
Fossil
3.4
0
0
0
3.4
Science
1.6
0
0
0
0
1,6
Other
2.3
0.7
0
0
0
3.0
Government admin
0.7 S
0
0
0
0.8
Total
$27.6
$45.3
$20.0
$6.0
$1.7
$100.5
Stare 'local government and private investment
State/iocal government and pri-
vate spending induced by federal
funds: os proportion of federal fundi
0
Ranges by program
between 0-3 times
federal spending
Up to 2.3 times
federal spending
Up to 10 times
federal spending
Up to 3 times
federal spending
-
State/iocal government and
private spending induced by
federal funds; as dollar amounts
0
$68 estimated
f= l.S times federal
spending average)
Up to $46
Up to $60
Up to $5.1
Up to $179.1
Total, all sources
$27.6 billion
Up to $11 33
Up to $66
Up to $66
Up to $6.8
Up to $280.0
Source: ARRA; grams gov; irs.gov; vvww.staiewcove'yo'g. wwvrgotgov/recovcry. edoc»e:ac«ssgsK}.gov; epagoviwwvuecoverygiw. cbo.gov; dsireusa.org.
Financial mechanisms for allocating federal funds
There are five separate categories; direct public spending, grants, tax incentives, loan
guarantees, and bonds. Direct public spending programs by the federal government — at
$27.6 billion — represents only about one-fourth of the total $100 billion in federal spend-
ing. With the remaining $73 billion in federal spending that will be allocated through
grants, tax incentives, loan guarantees and bonds, the federal ARRA funds are used as
incentives to induce still higher levels of environmental investment spending both by state
and local governments and even more so by private investors.
Additional spending by state and focal governments and private business
How much additional clean-encrgy investments will the $73 billion in incentives for state
and local governments and especially private businesses end up encouraging? Estimating
this amount of additional spending beyond the $73 billion in incentives is difficult,
6 Political Economy Research Institute • Center for American Progress j The £«nv>mic 8ene«tj of investing m Clean f w$iy
304
because of the very nature of incentives. The federal government obviously does not have
the power to force anyone to accept the incentives they are offering; nevertheless, it is
essential to establish at least some broad parameters as to how extensive the non-federal
environmental spending induced by ARRA is likely to be.
We therefore present in Table 1 some rough estimates of how much additional funding by
state and local governments and the private sector is likely to occur because of the $73 bil-
lion in federal incentives. Our estimates vary due to the nature of the different incentives,
Among the federal grants on offer, for example, are those that require no matching funds
from state or local governments or private businesses, such as “transit capital improve-
ments” and the “state energy program." And then there are those federal grants that do
require matching investments, such as "concentrating solar power” and “transportation
electrification.” We assume an average level of matching funds at about 1.5 times the level
of federal funds allocated for these grants, since this is a midpoint figure for the range of
matching fund requirements in the various grant programs.
With the tax incentives, loan guarantees, and bond financing programs, the upward range
by which federal funds maybe matched by state and local government or private invest-
ments is more consistently specified within the ARRA legislation. Based on this informa-
tion, vve estimate that non-federal spending will range between 2.3 times federal spending
for the various tax incentive measures to 10 times federal spending for the loan guarantees
and bond financings to help finance investments in renewable energy and smart grid trans-
mission systems. We explain in detail on page 49 of Appendix 1 how we derive these upper
end estimates for non-federal spending induced by the ARRA.
Overall, as Table 1 shows, we estimate that the various grants, loan guarantees, tax incen-
tives and bond financings could spur up to about $ 1 80 billion in total spending in addition
to the $ 100 billion in federal spending in clean energy through the economic stimulus
program. Yet the total level of investments could fall below that $280 billion if the private
sector does not respond with sufficient enthusiasm to the incentive programs provided by
ARRA. This could happen depending on the implementation of other clean-energy regula-
tions and incentives.
This is the crucial point of convergence of the clean-energy incentives advanced through
the economic stimulus program and the set of regulations and incentives currently
included in the American Clean Energy and Security Act before Congress. This combina-
tion of incentives will create the overall investment environment for dean energy in the
U.S. economy. But before we detail how this convergence will affect overall investment
flows from state and local governments and the private sector over the next decade, we
first must consider the rate at which clean-energy spending through the ARRA is likely to
be distributed throughout the economy.
7 Political Economy Research Institute • Center for American Progress | The Economic Scents «f Investing in Clean Energy
305
Rate of spending on economic stimulus programs
About 90 percent of the overall spending under the $787 billion American Recovery and
Reinvestment Act is designed to occur between 2009 and 2014.' But ARRA's clean-energy
components are largely designed to encourage private-sector participation, which means
the rate of spending on clean energy will stretch out over a longer period of time. This
is the case for several interrelated reasons. It takes longer for a private investor to decide
to pursue an investment opportunity because of federal government incentives than for
the federal government to undertake on its own a direct federal spending project. It then
takes time to obtain financing for such projects and organize the various contracting and
subcontracting parties involved in the project. Then and only then can the spending begin
on a private sector clean-energy project operating with federal subsidies.
The Congressional Budget Office recognized these factors in a recent analysis. CBO devel-
oped an eight-year time frame for the nearly full disbursement of ARRA-related invest-
ment funds on renewable energy and energy efficiency— managed by the Department of
Energy — with the bulk of spending on these projects occurring between 2010 and 2014.
Table 2 shows the rate at which the CBO is assuming these ARRA funds will be spent.
The CBO assumes that 35 percent of total funding will be spent as of 20 II , 90 percent by
2014, and 96 percent by 2015. We therefore assume that the rate of spending for the other
clean-energy investment components of ARRA will proceed at roughly the same rate as
these renewable-energy and energy-efficiency projects within the Department of Energy
budget. We can conclude that all of the dean-energy components of the economic stimu-
lus program will operate on a large scale for about five years, from 2010 to 2014. 2
TABLE 2
Congressional Budget Office estimated rate of ARRA spending on renewable energy and energy efficiency
Year of ARRA
spending
Percentage of total direct
federal spending in given year
Cumulative percentage of direct
federal spending as of given year
2009
2.6%
2.6%
2010
12.2%
14.8%
(2009-10 spending)
2011
19.9%
34,7%
(2009-1 1 spending)
2012
22.1%
56.8%
(2009-12 spending)
2013
17.6%
74.4%
(2009-13 spending)
2014
15.1%
90.0%
(2009-14 spending)
201S
6.2%
95.746
(2009-15 spending)
2016
1.6%
97.3%
(2009-16 spending';
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8 Political Economy Research Institute * Center for American Progress | ■ he ;;<
Trie Benefit? of (m'SVt’f
306
if we then also assume that nearly $280 billion in total is spent by the public and private
sectors over this five-year period, this would amount to an average level of clean-energy
investments tied to ARRA of about $56 billion per year over five years. Nevertheless, the
rate at which the federal money tied to incentive-based programs within the ARRA — the
grants, loan guarantees, tax incentives and bond programs — are actually spent will depend
on the broader set of regulations and incentives operating within the economy. As such,
the policies proposed through the ACESA will play a centra] role in strengthening the
clean-energy incentives introduced through the ARRA.
The American Clean Energy and Security Act of 2009
Thecurrent draft ofACESAsets outa variety of standards, regulations, and restrictions
governing energy efficiency and carbon emissions. As of June 18, 2009 the bill was still
under debate in Congress and will undergo further revisions before it reaches the presi-
dent for his probable signature. But the basic framework and parameters of the measure
will likely remain as presented in the draft legislation as it currently stands.
ACESA is primarily a piece of regulatory legislation, not a spending bill. Upon implemen-
tation, the law will influence the allocation ofprivate resources and the direction oftech-
nological change, and thereby alter the ways in which energy is produced and consumed.
This will happen most directly through the introduction of a carbon cap-and-trade pro-
gram that will put a price on carbon emissions for the first time and then allow companies
to trade carbon-emission credits among themselves as the cap on emissions rises.
This differs significantly from the clean-cnergy investment components of the economic
stimulus program that, as we have seen, are direct spending measures or subsidies to
promote private investment in these areas. Yet the underlying aim of the ACESA is also to
encourage new investments in dean-energy activities and correspondingly discourage reli-
ance on high-carbon fuels. Specifically, the new carbon cap-and-trade program will explic-
itly limit conventional fossil fuel production and consumption and encourage investors to
meet market demaud for energy by providing consumers with clean-energy alternatives.
ACESA boasts one section that deals directly with reducing carbon emissions through
a cap-and-trade program. Other aspects of the bill would: increase energy efficiency;
diversify sources of energy through the development of clean-energy alternatives; reduce
dependency on imported high-carbon fuels; and modernize the energy transmission and
distribntion system through the adoption of "smart grid” technologies. Together, ACESA
would promote clean-energy and energy efficiency; reduce our reliance on high-carbon
fuels, and support companies, individuals and communities through the transition to a
clean-energy economy.
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Besides the cap-and-trade program, ACESA includes regulations governing a new
national standard for electricity generation through renewable energy sources and a
set of broad guidelines by which new standards and regulations would be determined
through future legislative and regulatory initiatives. These major additional provisions
in ACESA include:
• A carbon capture-and-storage program. The bill calls for a study to assess the barriers
to the broad deployment of carbon capture-and-storage technologies alongside funds
forpilot demonstration projects through a new Carbon Storage Research Corporation.
• A iow-carbon fuel standard. The bill would establish a low-carbon fuel standard within
three years after the bill is passed, but does not contain the details of such a standard in
the actual legislation.
• New energy-efficient building standards. The bill would implement new standards
based on the International Energy Conservation Code for commercial buildings and the
American Society of Heating, Refrigeration, and Air Conditioning Engineers standards
for residential buildings, with the two standards based on "each model code or standard
released after the date of enactment of the Act." 1 The bill also requires the federal gov-
ernment to provide financial support for commercial and residential retrofits in order to
achieve compliance with the standards.
• New fuel-efficiency standards for motor vehicles. The bill authorizes the president
to set these new standards based on what is achievable by the automobile industry but
designed to achieve emissions reductions at the same level as California law ABI493.
The California regulations aim to reduce greenhouse gas emissions from new vehicles by
23 percent by 2012 and by 30 percent as of 2016.
• New industrial energy-efficiency standards. The bill would require the development
of energy-efficiency standards for factories and other types of industrial plants, with the
task of doing so assigned to the Secretary of Energy.
Because these additional provisions of ACESA do not include specific regulations, it is
not possible to consider categorically what their impact is likely to be on employment
or economic growth. But it is possible to calculate broadly how these new regulatory
measures would operate along with the two measures in ACESA — the renewable
electricity standard and the carbon cap-and-trade program — where detailed regulatory
standards are presented. We therefore consider those two detailed regulatory programs
within the ACESA.
tinting In 0<*a« Enemy
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Renewable energy electricity standard
ACESA proposes that six percent of ail electricity generation supplied by retail electricity
providers in the United States must come from renewable energy sources by 2012, rising
to IS percent by 2020. These renewable-energy sources include wind, solar, geothermal,
biomass, municipal waste, and hydropower. The draft legislation includes a provision
allowing utility companies that surpass the standard to trade their credits to other compa-
nies. Consequently, not all retail electricity companies will necessarily need to meet the
standard themselves, though on average the standard would hold for all retailers.
To analyze the implications of this standard, we draw on the most recent energy
forecasts in the Annual Energy Outlook 2009, published by the Department of Energy's
Energy Information Administration. We specifically base our analysis of the forthcom-
ing renewable energy electricity standards on the Energy Information Administration's
so-called “reference case." This reference case takes into account existing policies to esti-
mate the impact of this standard on the economy, but it does not consider how possible
new policies or other future developments — such as new technological advances —
could influence the ways a renewable energy standard would impact the economy’s
overall performance.
Based on this reference case from the EIA, the United States already meets the six percent
renewable standard set for 2012. Moreover, based on the reference-case forecasts in the
2009 Annual Energy Outlook, the new regulations would not be difficult for retail energy
suppliers to reach until around 2018, when the standard would rise to 14 percent.
But how much additional investment in renewable electricity generation would be
needed to meet the IS percent standard by 2020? The EIA estimates that our nation’s
overall available electricity supply would total 4,618 kilowatt hours by 2020. If IS
percent of this came from renewable sources, annual renewable electricity generation
would total about 690 kwhs.
We estimate that total installed renewable-energy electricity generation capacity would
have to increase by about S3 gigawatts from its current level to generate 690 kilowatts of
electricity from renewable sources by 2020. The dollar value of this investment would
total approximately $148 billion. If we spread out this level of investment over the next
decade, it would amount to approximately $15 billion in investment each year (see
Appendix 1 on page 48 for the detailed analysis).
The 15-percent renewable electricity mandate is not the only provision in ACESA that
will encourage investments in the production of renewable energy-based electricity. Other
provisions in ACESA — such as the cap-and-trade program — would also create incentives
for the more rapid shift towards renewable energy. In this broader context, it is conceiv-
able that the U.S. economy could exceed the 15 percent target by 2020, provided other
complementary policies operate effectively in support of that goal.
It Political Economy Research Institute * Center for American Progress | The Economic Benefits of investing in Clean Enorgy
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To calculate the level of investment needed to reach a 20 percent renewable electric-
ity standard by 2020, we draw again from the El A database. We calculate that it would
require an additional 1 04 gigawatts in total additional capacity to reach the 20 percent
renewable standard, which would entail about $290 billion overall in new renewable-
energy investments. Spread out over a decade, this level of renewable energy investment
would be about $30 billion per year.
Carbon cap-and-trade system
ACESA contains a specific schedule for reducing greenhouse gas emissions through 2050
via a carbon cap-and-trade system. That proposed schedule is as follows:
• 201 2: Three percent below 2005 emissions levels, which is 1 2 percent above 1990
emissions levels.
• 2020: Twenty percent below 200S, which is seven percent below 1990 emissions levels.
• 2030: Forty-two percent below 2005 (33 percent below 1990 levels).
• 2050: Eighty-three percent below 2005 (80 percent below 1990 levels).
Under this schedule — or any schedule ultimately endorsed by Congress and signed by
the president — new costs would be imposed on businesses for emitting carbon into the
atmosphere while businesses that use clean energy, or improve their efficiency, could see
savings in their energy bills. Businesses will pass along a significant share of these costs
and savings to consumers. The net result would be to discourage both businesses and
consumers from consuming energy from carbon-emitting sources; and to correspondingly
promote both energy efficiency and reliance on clean energy sources.
In tbis way, a carbon cap-and-trade system would operate in concert with the foil range
of incentives included in the economic stimulus programs and ACESA to shift overall
energy production and consumption toward efficiency and renewable sources and away
from high-carbon fuels. How much a carbon cap would reduce conventional fossil fuel
consumption and encourage clean-energy sources and efficiency would depend on how
large are the additional costs imposed by any such measure. It would also depend on how
affordable are the clean-energy alternatives to conventional fossil foe! consumption.
We can illustrate this point with a simple example. According to the Environmental
Protection Agency’s most recent model of the ACESA draft, the carbon-cap component
of the proposal would produce an increase in gasoline prices of about 10 percent relative
to the reference case as of 2030; the reference case price is approximately $4.15 per gallon,
while under cap-and-trade, F.PA forecasts the price at about $4.50 per gallon. How much
is a 10-percent increase in gasoline prices likely to affect economic activity more broadly?
1 2 Political Economy Research Institute • Center for American Progress j The Economic Renews of investing in Clean Energy
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According to many standard references in economic studies, what economists term the
“price elasticity of demand" for gasoline is in the range of -0.3. 4 This price elasticity esti-
mate refers to how much demand for gasoline would fall when the price of gasoline rises.
The estimate of a -0.3 elasticity means that if the price of gasoline rises by 10 percent
then demand would fall by three percent. Using the EPA model, gasoline prices will rise
by 10 percent relative to the reference case — from about $4.15 to $4.50 per gallon —
due to the carbon cap, which in turn will mean gasoline consumption would fall by
3 percent relative to the reference case.
Deriving this result is completely dependent on working with the price elasticity figure
of -0.3. But the price elasticity could also be raised substantially if, for example, there
were affordable and readily accessible options for raising efficiency and purchasing
renewable energy sources. If accessibility to public transportation improved substantially
and ifbiomass fuels became widely available and price competitive — two outcomes
that are likely to happen because of economic stimulus programs within ARRA and the
full range of incentives included in the ACESA — then we can imagine that the price
elasticity for gasoline could increase from -0.3 to -0.6. This would mean that a i 0-percent
price increase in gasoline would reduce gasoline consumption by six percent rather than
three percent At the same time, consumers need not sec their costs for transportation
rise, since clean-energy investments are aimed precisely at encouraging energy-efficient
vehicles, improving the quality of public transit offerings, and driving down the cost of
renewable energy sources for automobile fuel.
Overall, we can sec once again that the full effects of the cap-and-tradc system interact-
ing with other dean-energy incentives in the economy under ARRA and other elements
of the ACESA will encourage businesses, households, state and local governments to
embrace the dean-energy investment agenda, including the opportunities for their invest-
ments to be subsidized by federal government programs. We will now examine how this
full range of incentives could generate in the range of $150 billion per year in new clean-
energy investments throughout the U.S. economy.
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Creating $150 billion a year in
clean-energy investments
Our analysts of how the ARRA stimulus measure and ACESA will work together as
complementary initiatives allows us to estimate an overall level of new clean-energy
investments in the United States in the range of $150 billion per year over roughly the next
decade. In addition to our assessment of the various incentives and subsidies provided by
the ARRA, this calculation is based on our analysis of the potential size of the overall mar-
ket for clean-energy investments in the United States, including unsubsidi 2 ed investments
by businesses as well as investments receiving some form of government subsidy.
A total level of dean-energy investment spending in this range would represent about
eight percent of total annual private investment in the U.S. economy as of 2007 and about
1.1 percent of 2007 U.S. gross domestic product. By "investments" we refer to spending
that either improves energy efficiency or contributes toward the expansion of renewable
energy supplies. Retrofitting buildings, for example, is an energy-efficiency investment,
while research on improving the cost competitiveness of biomass fuels and building wind
farms are forms of renewable-energy investments.
A crucial feature of our approach is that we include in our $150 billion estimate only invest-
ments that have the potential to significantly expand employment opportunities in the U.S.
economy. There are major areas of energy-effidency investments that will not generate a
large net expansion of employment, including building energy-efficient automobiles and
appliances as well as construction of new buildings that operate at higher efficiency levels
than the existing building stock. In these cases, the employment requirements are not likely
to be larger than those for inefficient cars, appliances and buildings, though the gains in
efficiency will make important contributions to reducing greenhouse gas emissions.
We can consider the overall level of clean-energy investments according to two criteria:
• Investments that are either completely funded by the federal government or are
government-subsidized private investments.
• Unsubsidized private investments that result from the overall expansion of markets, new
technologies and related opportunities in the clean-energy sector.
We first consider the scope of the subsidized market then address more broadly the overall
market, including both the subsidized and unsubsidized segments.
14 Political Economy Research Institute • Center for American Progress | Ecc nlc Bern rs of invest <> > 1 - i . »)
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Subsidized public- and private-sector investments
Establishing an estimate for government funded and subsidized investments requires us
to work from two concrete reference points. The first is the spending levels that are likely
to result through ARRA. In a previous section of the paper we estimated this high-end
level at $56 billion per year between 2010 and 2014, including federal spending as well
as state and local government spending and private investments that could be induced by
the federal programs. This level of investment is predicated on private investors taking full
advantage of the range of clean-energy investment initiatives being offered through the
ARRA alongside the range of regulations and incentives included in ACESA.
The second reference point is our estimate that the total level of new investments in renew-
able energy electricity generating capacity would need to be around $15 billion per year
over 10 years to meet the 2020 standard now included in ACESA. It is likely that a signifi-
cant share of this new renewable energy investment capacity would be subsidized through
ARRA-based incentive programs. As such, we would be double-counting to assume that
all $ 1 5 billion per year in renewable energy electrical generating capacity would be an
increment of investment spending in addition to the $56 billion year in clean-energy
investments included in the ARRA. It is more reasonable to assume that some of the new
renewable electricity capacity will be financed out of the $56 billion in ARRA spending,
while a significant share will be come from unsubsidned private investors.
Expanding unsubsidized private-sector, ciean-energy investments
Moving beyond the specific case of the renewable electricity standard detailed on
pages 11-12, we can, more generally, expect that the opportunities generated by the
combination of ARRA and ACESA will lead to an expansion of the new investment
opportunities connected to clean energy, a corresponding rise in business opportunities,
and a related increase in productive efficiencies as these investment projects take root
across the country. That is, the unsubsidized market for clean-energy investments will
expand as an outgrowth of the subsidized market as businesses create and profit from
these new opportunities and as technologies improve. That in turn means the cost of
producing clean energy or increasing efficiency will fall as linkages strengthen among
companies operating in new clean-energy sectors and as financial institutions supply
more funds to support these investments. 5
Market potential for job-creating clean-energy investments
How large is the potential market for energy efficiency and renewable energy investments
that will also generate job creation in the United States, including both the subsidized and
unsubsidized segments of the market? We can obtain a sense of this by considering some of
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the possibilities in distinct parts of the overall market. As we will demonstrate, the potential
market for energy efficiency investments that also are newsources of job creation is around
$110 billion per year.* A rough approximation, which assumes an average investment in
retrofits of around $4,000 per unit, implies an overall potential market of $400 billion.
Energy efficiency
Improving energy efficiency through building retrofits, public transportation, freight
rail, and smart-grid electrical transmission systems involves technologies that are already
known. The returns on investment are also fairly certain and rapid. Once a growing market
infrastructure is established to support these investment activities, the private opportu-
nities will become increasingly clear to a widening range of investors operating without
government subsidies. Let’s consider each of these investment categories in turn.
An average-sized single-family home in the United States would require an investment of
as little as $2,500 in energy-efficiency retrofits to produce a cost savings in the range of 30
percent per year/ "This would involve caulking to plug air leaks in the house and adding insu-
lation to attics and basement ceilings. For an additional $2,S00, further energy savings are
available through replacing windows with air leaks and installing energy efficient appliances.
Despite these potential savings, most homeowners have not retrofitted their homes
because they are unaware of the costs savings available to them or they cannot afford the
upfront expenses and time commitment involved. But these barriers to retrofit invest-
ments will come down through the specific government spending programs that finance
retrofits, the building codes that establish higher efficiency standards in buildings, and the
more general regulatory environment that raises the costs of bnrning conventional fossil
fuels. As the market becomes more extensive and efficient, this will further encourage
new investment in retrofits. In particular, banks, utility companies and various types of
nonprofit groups will increasingly organize themselves to supply the upfront financing for
these projects. In addition, construction crews will begin to organize their services to take
advantage of the expanding opportunities.
The potential market for building retrofits is huge. There are roughly 1 10 million occupied
housing units in the United States, including 80 million single-family detached homes, as
well as smaller numbers of attached units, apartments, and trailers. As a rough approxima-
tion, assuming an average investment in retrofits would be around $4,000 per unit, implies
an overall potential market of $400 billion. We would then add the corresponding market
for non-residential structures. The U.S. Green Building Council surveyed the existing
stock of these structures in 2008, including all educational buildings, hospitals, retail
outlets, and office buildings of various sorts. They estimated the costs of retrofitting all of
these buildings at $358 billion. 8
o»rtc Benefits of Investing it' Ooari Lnenjy
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In short, the potential market for building retrofits alone in the United States is in the
range of $800 billion. If all of these structures were retrofitted over the course of a decade,
then it would provide a high-end level of this type of energy efficiency investment at $80
billion per year.
A recent study by Mark Chupka, Robert Earle, Peter Fox-Penner, and Ryan Hledik 9 provides
a basis for roughly estimating the potential market for smart grid investments over the next
decade. They project future investment in electrical distribution and transmission infrastruc-
ture will need to be $44 billion per year to meet the growing demand for electricity over the
20-year period between 20 1 0 and 2030. Their estimate includes all types of investment in
electrical transmission equipment, including conventional and smart-grid distribution and
transmission systems. They do not specify what they consider as a likely breakdown between
conventional and smart-grid systems within this overall investment agenda.
One consideration here is that the use of electricity generation from renewable sources
often entails accessing energy from more remote locations where wind, sun, or tidal waves
can be relatively intense. Making increased use of these new electrical generating sources
will correspondingly increase demand for investment in transmission lines. Operating
electricity generating systems through renewable energy sources will also entail an
improved capacity for transmission systems to deal with the intermittent flow of energy
coming from wind and solar sources. This is a key feature of smart grid systems. We would
argue that it is reasonable to assume that roughly half — for instance, about $20 billion of
the overall $44 billion in annual investments — will represent energy efficiency improve-
ments and investments needed to support the growth of renewable energy generation,
Public Transportation
Funds for public transportation will come entirely from the public sector, but some of these
funds will come from state and local governments to match levels of support provided by the
federal government. The ARRA allocates $23 billion for all transportation investments. This
includes highways and other road projects in addition to public transportation, but does not
specify the breakdown in spending levels between these two broad areas.
Given the environmental benefits of public transportation and the country's needs for
improved services, it is reasonable to assume that roughly half of these funds are devoted
to public transportation. If we also allow that state and local governments match this
level of funding on a one-for-onc basis, then overall public investment binding would
total about $25 billion. 10 Spread out on an annual basis, this would mean $5 billion per
year over the full span of the economic stimulus program. We also anticipate this level of
funding for public transportation will extend beyond the life of ARRA itself as one feature
of a broader clean-energy investment push in the United States. This would mean, in total,
$5 billion in investment over the full 10-year period being considered.
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Energy cogeneration systems utilize the heat generated by industrial processes to generate
electricity on-site, 'these systems therefore offer a significant means for utilizing available
energy sources at higher levels of efficiency. These investments will thus be encouraged —
along with other energy efficiency investments — through regulations that set a cap on
carbon emissions and subsequent increases in conventional fossil fuel prices. The Energy
Information Administration projects that investment in on-site cogeneration is expected
to grow by about 40 percent between 200? and 2030.“ It is reasonable to expect that this
will roughly entail an additional $5 billion in investment each year.
Investments in renewable energy — wind, solar, biomass, geothermal, and hydroelectric
power — will aim at advancing technologies to the point where they are fully cost-compet-
itive with conventional fossil fuels, and to integrate these cost-competitive technologies
into the U.S, economy's ongoing operations. This will also proceed across the range of
markets in which renewable energy sources are viable, including on- and off-grid electric-
ity generation, non-electricity forms of energy generation, and alternative fuels.
On-grid renewable energy
As we have discussed, it would require about $ 1 S billion a year in renewable energy invest-
ments in order to reach the IS percent renewable electricity standard by 2020 as stipulated
in the current draft of ACES A. 'Hie renewable electricity standard would apply to elec-
tricity retailers who supply energy to residential, commercial, and industrial customers
through the national distribution system — that is, "the grid."
But if the investments in renewable electricity were to grow more rapidly as technologies
improve, then renewable energy sources could supply as much as 20 percent of total electric-
ity as of 2020 to the electricity grid. To achieve this level of renewable electricity supply by
2020, it would entail new investments of about $30 billion per year over the next decade.
Off- grid renewable electricity
It is reasonable to anticipate a comparable growth in renewable energy investments for
end-users of electrical power. 'This includes businesses and households who generate
electricity off the grid for their own use from solar, wind, geothermal, and biomass
sources. The EIA, for example, projects that end-use generation of electricity from
renewable sources will grow at an annual rate of 6.5 percent from 2007 to 2030. This
level of off-grid power generation using renewable energy would involve approximately
SS6 billion in investment over approximately 20 years, or about $3 billion a year. 11 This
figure does not include any effects on investment levels from climate change legislation.
The rate of investment would therefore likely increase further as a result of the range of
incentives and regulations established by the ACESA.
« of investing m Ckwi Energy
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Nonsleam renewable energy
Electricity represents only one form of renewable energy that final users can generate
themselves. There are other forms of decentralized renewable energy production such
as geothermal pumps, solar hot water systems and even wood-burning stoves, in which
individual households and businesses alike could invest. If we assume that the investment
in these non-electrical forms of energy production is roughly equivalent to investment in
renewable electricity generation by end-users — as calculated by the EiA — then invest-
ment by final users would total about $3 billion per year.
Biofuels from non-food sources — for example, celluiosic biofuels — that can be used for
motor vehicle transportation represent another area of growing clean-energy invest-
ment. By 2020, the market for ethanol from a variety of sources is expected to be about
20 billion gallons per year. 13 To produce one-third of this quantity of ethanol from
celluiosic sources by 2020, additional investment of about $50 billion would be needed
over 10 years, or about $5 billion per year. 14
Clean-energy investments can total $150 billion a year
We calculate that overall clean-energy investments in the United States that also promote
job creation could reach $150 billion per year (see Table 3). This estimate is based, first,
on implementation of public policies included in the economic stimulus program and
TABLE 3
Breakdown of $150 billion in potential annual U.S. dean-energy investment
Includes only dean-energy investment areas that expand job opportunities
Clean-energy investment area
Energy efficiency
Building retrofits
Smart grid
Public transportation
Cogeneration
Renewable energy
On grid renewable electricity
Off grid renewable electricity
Off grid renewable— nonelectrical
Alternative motor fuels
Total
Potential annual investment level
$80 billion
$20 billion
$S billion
$5 billion
$30 billion
$3 billion
$3 billion
$5 billion
$151 billion
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ACESA, including as much as $56 billion per year in direct public spending and subsidies
for private investors over the life of ARRA, which will encourage state and local govern-
ment clean-energy programs and private-sector investments. We also allow for the strong
possibility that accelerated private investment rates could occur as technologies advance
and market structures develop, producing a cumulative, self-reinforcing process of innova-
tion and market expansion. This self-reinforcing process would proceed primarily without
relying on government subsidies. At the same time, achieving this kind of seif-reinforcing
investment momentum in clean energy is precisely the aim of the combined incentives
advanced through ARRA and ACESA. It is through taking account of these various factors
that we conclude that the overall level of dean-energy investments that will boost employ-
ment growth in the United States can be in the range of $150 billion annually.
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Methodologies for estimating
employment and GDP growth
The consequences of public policies on U.S. economic growth and employment growth
necessarily happen over time. That's why we cannot know with certainty what the effects
of policy will be. That’s also why we rely on economic models and various forecasting
techniques to generate estimates of what future outcomes are likely to be.
But there is a wide range of approaches to generating such estimates. Before proceeding
with our discussions as to how policies within ARRA and ACESA are likely to affect future
employment and gross domestic income growth, it is important to consider these meth-
odological points in some detail.
First, we have developed an approach to estimating the employment effects of clean-
energy investments that is, in our view, generally reliable. Our approach is reliable because
it operates on the basis of very few assumptions and is firmly grounded in the detailed
realities of the contemporary U.S. economy. Specifically, it is based on observing the cur-
rent detailed industrial survey data of U.S. business activity.
From these survey figures, as organized by the U.S. Department of Commerce into its
input-output model, we undertake a very simple set of exercises. We consider in today’s
economy how employment levels would change when we shift the proportions of overall
spending on energy from high-carbon sources to clean-energy and energy efficiency.
In contrast with our approach, models that attempt to estimate the effects of environmen-
tal policies such as a carbon cap on GDP growth over the next 20-40 years rely on a much
larger number of assumptions about the economy’s future growth path. These forecasting
models are thus highly sensitive to the assumptions on which the models are based.
We will demonstrate that these models are generally unreliable in predicting future GDP
growth even in the short term — much less over two to four decades. At the same time,
these more complex forecasting models do offer useful perspectives on how one should
think about the effects of a given policy, such as a carbon cap, on GDP growth. We will
detail below why we consider our model to be the best way to calculate the employment
effects of shifting energy spending from high-carbon fuels to clean-energy investments,
why we think the long-term GDP forecasting models are highly fragile and unreliable, but
also why these models nevertheless offer perspectives that are broadly useful in assessing
the effects of a carbon cap on GDP.
21 Political Economy Research Institute • Center for American Progress | The economic e-ooe.'::". c ‘ i-wost cii’tm ; ner.jv
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Our approach to estimating employment growth
Our employment estimates are figures generated directly from data from the Commerce
Department's surveys of businesses within the United States, and organized systematically
within their input-output model. Within the given structure of the current U.S. economy,
these figures provide the most accurate evidence available as to what happens within private
and public enterprises when they produce the economies 1 goods and services. The data help
us and others know how many workers were hired to produce a given set of products or
services, and what kinds of materials were purchased in the process. Our methodology is to
work within this detailed survey evidence and data set and to pose simple questions.
Here's one example of how our methodology works (for a complete analysis, see
Appendix 1 on page 48). If we spend an additional $ 1 million on building retrofits, how
will businesses utilize that money to actually complete the retrofit project? How much
of the $1 million will they spend on hiring workers, and how much will they spend on
non-labor inputs, including materials, energy costs, and renting office space? And when
businesses spend on non-labor inputs, what are the employment effects through giving
orders to suppliers, such as lumber and glass producers or trucking companies?
We also ask the same questions within the oil industry. To produce $1 million worth of
petroleum that can be sold to consumers at gas stations as a refined product, how many
workers will need to be employed, and how much money will need to be spent on non-
labor inputs? 'Through this approach, wc have been able to make observations as to the
potential job effects of alternative energy investment and spending strategies at a level of
detail that is not available through any alternative approach.
Estimating employment gains and losses within the input-output model is possible
because we are comparing the impact of total spending within clean-energy sectors and
conventional fossil fuel sectors. In particular, we do not distinguish between investment
and spending in creating new productive capacity as opposed to all other forms ofspend-
ing within each sector. But there is an important distinction here to note with respect to
the type of spending that will be predominant within dean-energy industries versus con-
ventional fossil fuel industries. In the case of clean energy, virtually all the new spending
will be devoted to investments to either promote energy efficiency or to expand renewable
energy generating capacity. This is precisely because the existing level of productive capac-
ity in energy efficiency and renewable energy remains tiny relative to the long-term needs.
In contrast, conventional fossil fuel industries spend on extracting, refining, transporting,
and delivering retail supplies within an already mature and vast productive infrastructure.
New investments to expand the fossil fuel productive infrastructure will therefore account
for a much smaller proportion of total spending within the sector than will be the case with
clean energy. To be sure, exploring for new sources of oil and gas frequently entail enormous
amounts of up front investments — this is less the case with coal, where the location of huge
22 Political Economy Research Institute < Center for American Progress | The Economic Benches of Investing In Clean Energy
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deposits of existing reserves are well known. Once companies are ready to extract new fossil
fuel supplies, high levels of up-front investments will again be required. Overall though,
these activities will operate within a fossil fuel energy infrastructure that is already highly
developed, so that the ability to deliver these newly developed energy supply sources to
market can proceed without requiring large-scale new investments.
There are certainly weaknesses with our use of the input-output model. The most
important are that it is a static model, a linear model, and a model that does not take into
account structural changes in the economy. But these flaws in our approach need to be
considered in the context of alternative approaches that operate with even more serious
deficiencies. So let’s first consider these points about the static model, the linear model
and structural change.
Static model
We make estimates as though everything is happening at one fixed point in time. A more
realistic picture of the economy would of course have to recognize that the effects of
public- and private-sector spending will take place in sequences over time, and that these
timing effects are important. Adding a time dimension would make the model 'dynamic,"
in the technical jargon.
The problem here is how to incorporate a time dimension in an effective way. In principle,
a dynamic model does offer a more complete picture than a static model as to how the
economy operates overtime. But dynamic forecasting models are generally unreliable
in their forecasts, as we detail below. We therefore think it is preferable to work within a
simpler framework, and draw out assessments within this simple framework of how transi-
tions affect the results eventually.
Linear model
Our model also assumes that a given amount of spending will have a proportionate effect
on employment no matter how much the level of spending changes, either up or down.
For example, the impact of spending $ 1 billion on an energy efficiency project will be
exactly 1,000 times greater than spending only $ 1 million on the exact same project.
The most significant consequence here is that we take no account of potential supply
constraints in moving from a $ 1 million project to a $ 1 billion project. Under some cir-
cumstances, this could be a serious deficiency in the model. But under current conditions
in the U.S. economy — with widespread slack in the midst of a severe recession, unemploy-
ment and with private-sector lending and investment almost flat — we are on safe grounds
with our assumption that supply constraints will not exert a major influence on how the
23 Political Cconomy Research Institute • Center for American Progress | The Economic Benefits of investing m Clean Energy
321
spending on green recovery effects the economy. Supply constraints could create prob-
lems for our estimation methods if the U.S. economy begins to approach full employment.
But the economy has not approached full employment since the late 1990s, and then only
briefly. We will certainly have time to make appropriate adjustments in our model if and
when the economy again begins moving toward full employment.
Another dimension of our assumption of linearity is that it assumes that prices remain
fixed, regardless of changes in demand. Our model, for example, docs not take account of
the effects of prices of solar panels when demand for these panels falls due to the reces-
sion. Again, a more fully specified model would take account of such factors — th at is, if
the recession leads to reduced demand for solar panels then prices of the panels will fall,
all else being equal. This means that for a given level of spending more panels will be pur-
chased at lower prices per panel. "The upshot for employment estimates is that a given level
of spending on panels will likely mean that more jobs will get created to build, deliver, and
install the panels. But here again, the forecasting record of more fully specified models that
do attempt to incorporate such price effects is not encouraging.
Structural change
Our employment estimates are derived from the most recent 2007 input-output model of
the U.S. economy, and reflect the industrial structure of the economy as of the most recent
industrial surveys. But it is certainly the case that the U.S. industrial structure will be
evolving over time. This issue would seem especially relevant in considering employment
conditions within the clean-energy economy, since our economy will certainly undergo
significant structural changes as technologies develop. How does this reality of structural
change affect the reliability of our employment forecasts?
In fact, the use ofworkers in clean energy industries and services will not change at an
equivalently rapid pace over time even though clean energy technologies will be advanc-
ing substantially. Consider this example: Ahigh proportion of energy-efficiency invest-
ments — such as for building retrofits, public transportation, and smart grid electrical
transmission systems — will heavily rely on the construction industry. Detailed aspects of
the work involved in retrofitting a home, for example, will change as retrofitting methods
develop. But the overall level of demand for workers to conduct retrofits — whatever are
the detailed features of such projects — is likely to remain fairly stable.
A similar situation is likely to hold with the production of renewable energy, regardless
of whether the solar panels, wind turbines, or biomass fuel refining plants are more or
less efficient because of technologies that convert their raw materials into useful energy.
That is, the need to employ workers to manufacture, transport, and install these newly
developed renewable energy products is likely to remain fairly stable as a proportion of
overall activity in the industry.
24 Political Economy Research Institute • Center for American Progress | T hi ! conmmc h* m k I nerov
322
Overall, then, we are confident that our input-output framework provides the basis for as
accurate a set of job estimates as can be obtained through the existing available models
and modeling techniques.
Forecasting models for GDP growth
Models that forecast long-term GDP growth face much more difficult challenges than
our simple framework for estimating employment effects from a shift from high-carbon
fuels to clean energy investments within the existing economic structure. This is because
the long-term forecasting models not only aim to describe the economy as it functions at
present but attempt to predict how its operations will evolve into the future. This becomes
difficult, as basic features of the economy’s future growth path are simply unknowable at
the time the forecasts are produced.
There is little dispute abuut the dismal record of economic forecasting models in estimat-
ing the economy’s growth path even over the short term. In this regard, it is useful to
recall two highly relevant and interrelated cases in point. Few, if any, economic forecasting
models predicted that by June 2008 crude oil would be selling at $140 a barrel — including
forecasts generated less than one year before crude hit that record mark. 15 Once the price
of crude oil did rise to $140 a barrel, few forecasters then predicted that the price would
collapse to $35 a barrel only six months later.
More generally, almost no economic forecasts predicted that the U.S. economy would
enter into a recession of historic severity in December 2007. This includes even the fore-
casts that were published after the recession had already begun. 16
One faces still greater difficulties in attempting to provide accurate forecasts over a long
time period — such as 20 to 40 years — of the effects on economic growth of a carbon cap,
such as that proposed in ACESA. This is because the impact of any carbon cap-and-trade
initiative will depend, first of all, on the overall policy agenda focused on counteracting
global climate change. The economic stimulus program, for example, includes about $100
billion in federal funds to advance energy efficiency and the commercialization of renew-
able sources of energy, and another $ 1 80 billion of incentives for state and local govern-
ments and private businesses to invest in clean-energy projects.
Policy measures on this large a scale will certainly accelerate energy efficiency measures
and lower renewable energy prices such that they become increasingly competitive with
high-carbon energy sources. But we cannot know in advance the pace of this process. We
cannot know how long such supportive measures for energy efficiency and renewable
energy will be forthcoming from government policy.
25 Political Economy Research Institute • Center for American Progress 1 The Economic Benefits of it
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These considerations will be decisive in determining the impact of a carbon cap, and
related measures, on economic growth. 1 ' In short, we cannot assume that models that
attempt to assess the impact of a cap-and-trade policy on U.S. gross domestic product
in 2030 or 2050 are reliable in terms of their GDP forecasts. This is certainly true when
judged relative to our simple input-output framework for estimating the employment
effects of shifting investment priorities from conventional fossil fuels to clean energy
within a given economic structure. Our input-output framework enables us to observe in
detail how any such shifts in investment priorities — even within a given overall economy
and at a given level of GDP, without making any assumptions at all about the pace of GDP
growth — can themselves produce significant changes in employment opportunities.
At the same time, these other forecasting exercises can still offer useful frameworks and
perspectives for our efforts at assessing how a cap-and-trade policy or related policy interven-
tions would impact economic growth. In the discussion beginning on page 40, we therefore
consider the effects of a cap-and-trade program on GDP growth that draws on a range of
existing forecasting exercises focused on this question.
26 Political Economy Research Institute • Center for American Progress j "ho t.'cvoni’s- H; U'lv.i-or, 'n '.nv o ~wrv
324
Job creation through
clean-energy investments
Spending money in any area of the U.S, economy will create jobs since people are needed
to produce any good or service that the economy supplies. This is true regardless of
whether the spending is done by private businesses, households, or a government entity.
But spending directed toward a dean-energy investment program will have a much larger
positive impact on jobs than spending in other areas, including the oil industry even when
taking into account all phases of oil production, refining, transportation, and marketing.
Spending on clean energy will create a higher net source of job creation in the United
States relative to spending the same amount of money on high-carbon fuels because of the
three sources of job creation associated with any expansion of spending — direct, indirect,
and induced effects. These three effects in, say, investments in home retrofitting and build-
ing wind turbines can be described in this way:
• Direct effects. The jobs created by retrofitting homes to make them more energy
efficient, or building wind turbines.
• Indirect effects. The jobs associated with industries that supply intermediate goods for
the building retrofits or wind turbines, such as lumber, steel, and transportation.
• Induced effects. The expansion of employment that results when people who are paid
in the construction or steel industries spend the money they have earned from pro-
ducing these immediate and intermediate goods for clean energy industries on other
products in the economy.
Now let's consider how these various sources of job creation operate with respect to
investments in both the clean-energy and conventional fossil fuels.
Direct and indirect job creation
Our analysis here begins with the U.S. industrial surveys and input-output tables we used
for our models to generate results on direct and indirect job creation. 111 Table 4 shows the
extent of direct and indirect job creation generated by $1 million in expenditures on pro-
ducing alternative energy sources. 19 We present the total job creation figures as absolute
27 Political Economy Research Institute • Center for American Progress | The Economic Rcne-hH investing in Clean Energy
325
TABLE 4
Employment impacts of alternative energy sources
Job creation per $1 million in output
Energy source
Direct job creation per
$1 million in output
(# of jobs)
Indirect job creation per
SI million in output
(# of jobs)
Direct and indirect job creation
per SI mitlion in output
of jobs)
Direct and indirect job
creation relative to oil
{% difference)
Fossil fuels
Oil and natural gas
0.8
2.9
3.7
-
Coal
19
3.0
49
*32 4li
Energy efficiency
Building retrofits
7.0
4.9
11.9
*221 6%
Mass transit/freight re
lil (90% MT. iO%FR) 11.0
4.9
15.9
+329.7%
Smart grid
4.3
4£
8.9
+140.5%
Renewables
Wind
4,6
4.9
9.5
+156.8%
Solar
5.4
4.4
9,8
+164.9%
Biomass
7.4
S.O
12.4
+235.1%
numbers of jobs as well as in relative terms, as a percentage of job growth relative to that
generated by spending $ 1 million on oil and natural gas.
As the table shows, spending Si million on energy efficiency and renewable energy pro-
duces a much larger expansion of employment than spending the same amount on fossil
fuels or nuclear energy. Among fossil fuels, job creation in coal is about 32 percent greater
than that for oil and natural gas.
The employment creation for energy efficiency — retrofitting and mass transit — is
2.S times to four times larger than that for oil and natural gas. With renewable energy,
the job creation ranges between 2.5 times to three times more than that for oil and gas.
Induced job creation
It is more difficult to estimate the size of the induced employment effects — or what
is commonly termed the "consumption multiplier" within standard macroeconomic
models — than to estimate direct and indirect effects. There are still aspects of the induced
effects we can estimate with a high degree of confidence.
In particular, we have a good sense of what is termed the “consumption function/’ or what
percentage of the additional money people receive from being newly employed will be
spent. But it is more difficult to project accurately what the overall employment effects
will always be of that extra spending.
28 Political Economy Research Institute ■ Center for American Progress | The Economic Benefits of inveuino '»■> Cfean Energy
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First, the magnitude of the induced effect will depend on existing conditions in the econ-
omy. If unemployment is high, then this will mean that there are a large number of people
able and willing to take jobs if new job opportunities open up. But if unemployment is low,
then there will be less room for employment to expand — even if newly employed people
have more money to spend.
Similarly, if there is slack in the economy’s physical resources, then the capacity to expand
employment will be greater — and the induced effects larger. If the economy is operating
at a high level of activity, there is not likely to be a large employment gain beyond what
resulted from the initial direct and indirect effects.
Given the rapid deterioration of economic conditions over the past 18 months — including
rapidly rising rates of unemployment — the U.S. economy is not likely to bump up against
this kind of capacity constraint in the near future. Thus we would expect the induced effects
to be significant in the current climate. More generally, the U.S. economy has not come close
to approximating a full employment economy since the late 1990s, and even then, the tight
labor market conditions were sustained only briefly, until the dot.com stock market bubble
burst Consequently, it is unlikely that the induced effects of a direct and indirect employ-
ment expansion will be diminished by excessively tight labor markets in the future.
We have developed a formal model to estimate the broad magnitude of the induced
emplnyment effects more systematically. We present our procedures details in Appendix 1
on page 48. The basic approach is straightforward: We begin by estimating how much of
the additional employment income earned as a result of the increased investments is spent
TABLE s
Total employment creation through alternative energy sources
Direct, indirect, and induced effects for $1 million in spending {induced jobs = 0.4(direct + indirect jobs))
Energy source Total job creation Total job creation rclat ive to oil
Fossil fuels
Oil and natural gas 5.2 —
Coal 6.9 +327%
Energy efficiency
Building retrofits 16.7 +221.2%
Mass transit/freight rail(90%MT. 10% FR) 223 +328.8%
Smart grid 12.5 +140,4%
Renewables
Wind 133 +1553%
Solar 137 +163.5%
Biomass 17.4 +234.6%
29 Political Economy Research Institute • Center for American Progress | The Economic Benefits of investing in dean Energy
327
on household consumption. Using our basic input-output model, we estimate the number
of jobs that this additional consumption spending wonld generate, assuming that there is
ample excess capacity in the economy due to the prevailing high levels of unemployment.
Working with this model, we fiud that the level of induced job creation is abont 40 percent
ofthe level of direct plus indirect job creation. For this study, we therefore proceed under
the assumption that induced jobs will expand overall job creation by 40 percent beyond
what occurs through the direct plus indirect effects. We present figures for total job
creation for all investment areas in Table 5. We can now see the total level of job creation
through spending SI million in each energy area. The range is between 5.2 jobs in the oil
industry to 223 jobs in mass transit.
Overall job growth — clean-energy investments vs. conventional fossil fuels
We combine and summarize these results on overall job creation in Figure I. This figure
shows the total number of jobs — direct, indirect, and induced — that we estimate would
be created from spending $i million in a combination of six clean energy investment
areas — three energy efficiency investment areas (building retrofits, public transporta-
tion and freight rail, and smart grid electrical transmission systems) and three renewable
energy areas (solar power, wind power, and biomass fuels). 20
This combination of clean-energy investments will generate about 16.7 jobs per $1 million
in spending. As Figure 1 also shows, $ 1 million in spending within the fossil fuel industry,
divided according to the actual proportions of spending in these sectors as of 2007 will
generate S3 jobs in total.
Spending a given amount of money on a clean-energy investment agenda generates
approximately 3.2 times the number of jobs within the United States as does spending the
same amount of money within the fossil fuel sectors.
FIGURE 1
Job creation through $t million in spending
Green investments vs. fosiH fuels
Number of jobs created
■■■— 1 m —
16.7 jobs
Source: Input-Output tables at US. Commerce Department.
More Employment estimates include direct, indirect, and induced |o!m Details of calculations presented m appendix.
30 Political Economy Research Institute • Center for American Progress [ - ho economic Benefit* o' investing m Cte3n Energy
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Sources of greater job expansion through cSean-energy investments
Why does a combination of clean-energy investments create in excess of three times more
jobs per a given amount of spending than the fossil fuel industry? Three factors are at work:
• Relative labor intensity. Relative to spending within the fossil fuel industries, the clean -
energy program — including the direct spending on specific projects plus the indirect
spending of purchasing supplies — utilizes far more of its overall investment budget on
hiring people, and relatively less on acquiring machines, supplies, land (either on- or
offshore) and energy itself.
• Domestic content. The clean-energy investment program — again, consider ing direct
plus indirect spending — relies much more on economic activities taking place within
the United States — such as retrofitting homes or upgrading the electrical grid system
in communities throughout the country — and less on imports than spending within
conventional fossil fuel sectors. We consider this issue in more detail below.
• Pay levels. Clean-energy investments produce far more jobs at all pay levels — higher as
well as lower-paying jobs — than the fossil fuel industry. Clean-energy investments also
produce more jobs for a given dollar of expenditure due to the larger number of entry-level
jobs relative to the fossil fuel industry. Workers thus benefit through the expansion of job
opportunities at all levels within the U.S. labor market. We also return to this issue below.
TABLE 6
Green investments and jobs
Major areas for green
investment agenda
Representative jobs
Building retrofitting
Mass transit/freight rail
Smart grid
Wind power
Solar power
Celluiosie biofuels
Electricians, heating/air conditioning installers, carpenters, construction equipment operators, roofers, insulation workers, carpenter helpers,
industrial truck drivers, construction managers, building inspectors.
Civil engineers, rail track layers, electricians, welders, metal fabricators, engine assemblers, bus drivers, dispatchers, locomotive engineers,
railroad conductors.
Computer software engineers, electrical engineers, electrical equipment assemblers, electrical equipment technicians, machinists, team
assemblers, construction laborers, operating engineers, electrical power line installers and repairers.
Environmental engineers, iron and steel workers, millwrights, sheet metal workers, machinists, electricat equipment assemblers, construction
equipment operators, industrial truck drivers, industrial production managers, first-line production supervisors.
Electrical engineers, electricians, industrial machinery mechanics, welders, metal fabricators, electrical equipment assemblers, construction
equipment operators, installation helpers, laborers, construction managers.
Chemical engineers, chemists, chemical equipment operators, chemical technicians, mixing and blending machine operators, agricultural
workers, industrial truck drivers, farm product purchasers, agricultural and forestry supervisors, agricultural Inspectors.
31 Political Economy Research Institute • Center for American Progress j The Economic Benefits »«• hives! »g 'n Clean c-K'rgy
329
Range of jobs generated by dean-energy investments
As Table 6 shows, building a clean-energy economy would create new job activities. Some
of these jobs will be in specialized areas such as installing solar panels and researching new
building material technologies. But the vast majority of jobs are in the same areas of employ-
ment that people already work in today — in every region and state of the country.
Constructing wind farms, for example, creates jobs for sheet metal workers, machinists
and truck drivers, among others. Increasing the energy efficiency of buildings through
retrofitting requires roofers, insulators and building inspectors, and expanding mass transit
systems employs civil engineers, electricians, and dispatchers. More generally, this overall
clean-energy investment program will provide a major boost to the construction and
manufacturing sectors throughout the United States.
In addition, all of these clean-energy investment strategies engage a normal range of service
and support activities — including accountants, lawyers, office clerks, human resource manag-
ers, cashiers, and retail sales people. We have not listed these and other related occupations in
Table 6 because these jobs are not linked in any particular way to our six clean-energy invest-
ment strategics. But new employment opportunities will certainly also open up in these areas
as a result of the clean-energy investment program, through ail of the same direct, indirect,
and induced job creation channels that are also generating the jobs we have listed in Table 6 .
Then there’s the range of jobs by occupational groupings created through clean-energy
investments. In Table 7 we present data on the distribution of job types that are created
TABLE 7
Economic activity by energy-related sector
figures are percentages of total jobs for each sector
Energy source Extraction Agriculture Manufacturing Construction Utilities Trade Transport
Fossil fuels
Oil and natural gas 14.6 0.4 13.9 2.4 11.3 6.6 13.1
Coal 41.6 0.3 13 1 09 78 5.9 6.8
Energy efficiency
Building retrofits 0.5 14 13.6 61 S 0.1 7.9 2.S
Mass transit/freight rail 0.3 0.6 7.8 21.7 0.1 4.4 54,4
Smart grid 0.4 0.6 38.1 1S.7 0 2 63 2 3
Renewables
Wind 0.6 0.9 47.4 20.3 0 2 7 1 3.7
Solar 0.5 09 37.4 23.7 02 69 3.2
Sioriass U 60 4 20.6 0.4 0 2 3.8 2 8
Independent admin/
professional
37.5
23.6
12.4
10.7
3S.9
198
274
105
32 Political Economy Research Institute ■ Center for American Progress | The Economic Benofi!', o' Rwy • 'n -s i n.-M
330
through alternative-energy spending programs. As the table shows, employment is spread
fairly evenly in the oil industry across a range of sectors, including extraction, manufactur-
ing, utilities, transport, and administrative and professional occupations, such as lawyers,
accountants, and technical/scientific personnel. Coal, by contrast, is much more heavily
concentrated in extraction, with nearly 42 percent of total value coming from extraction.
Of course, different parts of the dean-energy economy also generate different combina-
tions of job creation. Building retrofitting is dominated by the construction industry, with
some economic activity in manufacturing and professional services. In wind and solar
power generation, the largest proportion of new jobs created will be in manufacturing,
with construction second. Wind and solar also draw heavily on independent professionals,
including research and development personnel.
Hie overall point is that for a clean-energy investment program to provide a range of new
employment opportunities comparable to what is made available through the oil iudustry,
it will be necessary to promote the full array of clean-energy initiatives. The range of job
opportunities available within the oil industry cannot be duplicated by any single clean-
energy activity alone.
Employment effects of $150 billion a year clean-energy investments
To consider how a clean-energy program can create major economy-wide impacts, we
have to consider the issue within the context of the $150 billion in new dean-energy
investments that we have discussed above. As we have seen above, this level of clean-
energy investments can be achieved through the combination of spending programs,
subsidies, and regulations included in the ARRA and ACESA, along with continued
advances in clean-energy technologies and a corresponding expansion of private
markets and business investment opportunities.
As we see in Table 8, an annual $ ISO billion clean-energy investment level would generate
a total of about 2.5 million jobs. By contrast, spending the same $150 billion within the
fossil-fuel industry would produce about 800,000 jobs. This is a difference of roughly 1 .7
million jobs. In Appendix 2, we break out these economy-wide estimates for net employ-
ment expansion through clean-energy investments on a state-by-state basis.
It is not likely that the funds to finance $150 billion in clean-energy investments would all
come out of equivalent spending reductions on fossil fuels. Nevertheless, we emphasize a
crucial point by comparing the expansion in employment through $ 150 billion in clean-
energy investment spending relative to an equivalent decline in fossil fuel spending—
clean-energy investments will generate a large net e.xpansion in employment even after
allowing for a maximum transfer of funds out of fossil fuel spending.
33 Political Economy Research Institute • Center for American Progress | The Economic Benefits c? investing in Clean Energy
331
TABLE B
Impact of $150 billion in dean-energy investments on U.S. labor market
A) Overall employment expansion through $150 billion shift from fossil fuels to clean energy
1! Job creation through $150 billion spending on clean energy.
2) Job creation through $ 1 50 billion spending on fossil fuels.
3) Net job creation through shift to dean energy (row 1-2).
B) Impact of dean energy job expansion on 2008 U.S. labor market
1) Overall labor force.
2) Total employed before clean-energy investments.
3) Total unemployed before dean-energy investments.
4} Unemployment rate before clean-energy investments {= rows 3/1).
5) Impact on total employment of shift from fossil fuels to dean energy.
6) Impact on unemployment rate of shift from fossil fuels to dean energy (= rows (3-5)/1 )).
Source US Bureau of labor Statistics and isaw AN.
2.5 million jobs
795,000 jobs
1 .7 million jobs
154.3 million
145.4 million
8.9 million
S.8% (=8.9 million/1 54.3 million)
Employment rises by 1.7 million jobs: 1.2% increase to 147.1miliion
Unemployment falls from 5.8% to 4.7% (=7.2 million/154.3 million)
In the lower panel of Table 8, we then consider what the impact would have been on the
2008 U.S. labor market if there had been a net increase in employment of 1.7 million jobs.
We know that, in reality, conditions in the labor market do not remain static, and that
we are not describing what is actually likely to happen when we consider an immediate
employment expansion. We present these data simply to provide a broad reference for
gauging the impact of a net clean-energy investment transition— including reductions in
fossil fuel spending — at the rate of about $150 billion per year.
Over the full year of 2008, there were 14S.4 million people employed and 8.9 million
unemployed, producing an unemployment rate for the year of 5.8 percent. A net increase
of 1.7 million new jobs would therefore lower the unemployment rate to 4.7 percent.
Tilts greater than one percentage-point reduction in the country’s unemployment rate
would generate a rise in wages across the board — particularly for low-income work-
ers. According to the body of research surveyed by Timothy Bartik of the W.E. Upjohn
Institute, a one percentage-point fall in the unemployment rate will in turn lead to a rise in
average earnings of about two percent. 21 Bartik notes that this positive wage effect is likely
to be somewhat stronger at the lower end of the labor market. This is probably because,
other than the foiling unemployment rate itself, those at the low end of the labor market
are not likely to have other tools to help them raise their bargaining power. 22
More jobs through low productivity, protectionism, and bad pay?
Some critics of our previous work comparing job growth in clean-energy industries and
fossil fuel industries acknowledge — at least implicitly — that the clcan-energy investments
can be a positive source of job creation. 23 But they claim that the job expansion comes at
a stiff price since it occurs through promoting low productivity, protectionism, and low
wages. But, as we discuss below, these claims are wrong.
b 0&W* Energy
34 Political Economy Research Institute • Center for American Progress | The Economic Benefits of investing it
332
Low productivity is not the resuit of dean-energy investments
Lets begin with the critics’ own framework for thinking about labor productivity, which
is total output per worker. From this perspective, the matter is easy to settle, virtually as
a matter of definition. By definition, if we increase labor intensity through clean-energy
investments — if we generate about 17 jobs per Si million through clean-energy invest-
ments versus about five jobs through fossil fuel spending — then we reduce labor produc-
tivity in the energy sector through shifting spending toward dean energy.
Yet this perspective ignores two crucial and widely understood considerations. First, by
raising overall employment, dean-energy investments provide new opportunities to previ-
ously unemployed workers. This raises the productivity level of millions of workers from
zero to a positive number. Any economy-wide measure oflabor productivity has to take
account of this effect. Similarly, clean-energy investments create new opportunities for
underemployed workers — thereby raising their productivity from a lower to a higher level.
Second, given the global dimate crisis, we need to begin incorporating environmental effects
into the measurement of output and productivity. That is, spending on high-carbon fuels
creates the output "good" of electrical power. But it also creates the output “bad” of pollu-
tion and greenhouse gas emissions. This point has long been recognized in discussions of
the environmental costs of economic growth, and is included in virtually every introductory
economics textbook. Thus, with every unit of energy generated by clean-energy investments
as opposed to conventional fossil fuels, the net increase in output is greater to the extent that
we are not producing the “bad" of pollution and greenhouse gas emissions.
This is why dean-energy investments will raise economy-wide labor productivity substan-
tially through two channels;
♦ By expanding total employment per dollar of expenditure in the economy, it provides
millions of people with new opportunities to become productive workers.
• By generating energy from dean sources, it increases the level of "goods" we produce
and correspondingly reduces our production of “bads.”
The critics’ contention that clean-energy investments result in low productivity growth
ignores this crucial set of considerations.
Clean-energy investments are not protectionist
The relatively high level of domestic content in dean- energy products and services
is — along with relatively high labor intensity — a major factor generating the higher
level of job creation relative to fossil fuels for a given level of spending. Yet it is crucial to
recognize that the high domestic content for clean-energy products and services occurs
35 Political Economy Research Institute • Center for American Progress | 7 he Economic Benefits of investing ir Clean inerqy
333
TABLE 9
Domestic content for alternative energy sources and energy-efficiency investments
Energy source
Domestic content as share of total indus-
try output (in percentages)
Domestic content relative to oil
(percentage-point difference)
Fossil fuels
Oil and natural gas
82.9
Coal
933
+10.6
Conservation
Building retrofitting
973
+14.4
Mass transit/rail
96.7
+133
Smart grid
84.1
+U
Renewables
Wind
87.8
+ 4,9
Solar
84.7
+1.8
Biomass
93.8
+10.9
through the specific characteristics of the alternative investment activities spurred by
clean-energy investments and will occur independent of any forma! legal mandates
regarding domestic content.
This becomes dear by considering the relative extent of economic activity provided by
domestic sources for each of our specific energy sources. As Table 9 shows, there are major
differences by energy sector in terms of their degree of domestic content. Oil and gas have
the lowest relative domestic content, at around 83 percent of total value generated in pro-
ducing this energy type. Hie domestic content of crude oil production, at about 50 per-
cent of total crude oil sold in the United States, is much lower than for all other subsectors
within the oil industry. 14 These other subsectors include the full range of administration,
transportation, and marketing of crude and refined oil as well as natural gas — all activities
that would be readily transferrable into a growing clean-encrgy sector.
The domestic content of coal production, at 94 percent, is significantly higher than the
overall level for the oil industry. The three renewable energy sources operate with levels
of domestic content roughly in line with the oil and coal sectors, with solar at 85 percent,
wind at 88 percent, and biomass at 94 percent. 25 The smart grid is also in the same range,
at around 84 percent. These are all areas where innovation in manufacturing clean-energy
products and services will be central to raising domestic content.
The significant difference in domestic content occurs with retrofits, mass transit, and
freight rail. In these cases, the level of domestic content is around 97 percent. For the most
part this result is because these energy-efficiency investments are bound to specific loca-
36 Political Economy Research Institute • Center for American Progress | ? he Economic 8ene&» of investing »n
Cjortfi Energy
334
tions. That is, retrofitting a home in Philadelphia can only be done in Philadelphia, and
upgrading the Los Angeles electrical grid system will entail large-scale construction activ-
ity in Los Angeles. This is true even though some ofthe supplies for both the Philadelphia
and Los Angeles projects could be imported. The point is that most of the spending on
both projects will be on the local construction work itself, not the purchase of supplies.
By contrast, the more an energy sector is linked to manufacturing and extractive activity,
the more it naturally becomes exposed to import competition. The United States is cer-
tainly capable of expanding its manufacturing capacity in areas such as wind turbines and
solar panels. But unlike the retrofit case, where the bulk of the work is construction and
that construction work must be performed on-site, there is no reason why a wind turbine
needs to be manufactured within the United States,
Bad jobs are not the result of clean-energy investments
Hie single most important point to stress in evaluating the employment effects of clean-
energy versus fossil fuel investments is that dean-energy spending creates far more jobs
across all categories than spending on fossil fuels. We can see this clearly by considering
the profile of jobs created according to the range of credential levels in clean-energy jobs
versus those in the fossil fuel sectors. This discussion is based on a companion study we
have conducted under commission with the Natural Resources Defense Council and
Green For All, "Green Prosperity: How Clean-Energy Policies Can Fight Poverty and
Raise Living Standards in the United States.” 16 A fuller treatment on this and related ques-
tions is presented in this NRDC/Green For All study on page 12.
Working from that study, we provide evidence on this type of job breakdown in Table 10,
where we sort the total number of jobs generated by $1 million in spending according to
three job credential categories:
• High-credcntiaied jobs requiring at least a bachelor’s degree and paying on average
$24.50 an hour.
• Mid-credentialed jobs requiring some college but not a B.A. and paying on average
$14.60 per hour.
• Low-credcntialed jobs requiring a high school degree or less and paying on average
$12.00 per hour.
We show these breakdowns both for clean-energy investments and fossil fuel invest-
ments and show the difference between the two based on all three of these categories.
We also include as our final category the low-credentialed jobs that ofTer decent oppor-
tunities for advancement and higher wages over lime. These are jobs in construction,
manufacturing, and transportation.
37 Political Economy Research Institute • Center for American Progress | The Economic Benefits of investing in Clean Energy
335
TABLE tO
Breakdown of job creation through green investments versus fossil fuels by formal credential levels
Based on St million of spending
1) Green investments
2} Fossil fuels
3) Difference in job creation
<= column 1-2)
Total job creation
16.7
S3
11.4
High-credentialed jobs
3.9
(23.3% of green investment jobs)
1.5
(28.3% of fossil fuel jobs)
• B.A. or above
■ $24,50 average wage
2.4
Mid-credentialed jobs
1j6
(30.2% of fossil fuel jobs)
• Some college but not B,A.
* $14,60 average wage
(28.7% of green investment jobs)
32
Low-credentialed jobs
22
(41.5% of fossil fuel jobs!
* High school degree or less
• $ 12.00 average wage
(47.9% of green investment jobs
5.8
Note: Low-credentlaled jobs
with decent earnings potential
• $15.00 average wage
4.8
(28.7% of green investment jobs)
0.7
(132% of fossil fuel jobs)
4.1
Note: wage is ihe median wags la all workers across ail industries within sach of the credential categories listed above.
Source- 2008 Current Popuiairon Survey, IMPLAN.
To begin with/we can see in Table 10 that the net job creation is substantially higher with
clean-energy investments than conventional fossil fuels across all three credential catego-
ries. This is true even while the proportions of jobs created in the different categories differ.
As a case in point, about 23 percent of the total clean-energy jobs created by investments
in this sector are high credentialed compared to 28 percent in fossil fuel sectors, but clcan-
energy investments create 2.5 times more high-credentialed jobs.
Clean-energy investments also create three times more mid-credentialed jobs, but again the
proportion of mid-credentialed jobs for fossil fuel spending, at 30.2 percent, is higher than
with dean-energy investments. The most substantial difference is with low-credentialed jobs.
Clean-energy investments create 7.7 jobs per $1 million in spending versus only 2.2 jobs per
$ l million with fossil fuels. This is a difference of5.5 jobs for low-credentialed workers.
What’s more, these more numerous low-credentialed jobs resulting from dean-energy
investments by and large lead to greater possibilities for advancement. In particular,
industries in which low-income workers are better able to achieve decent earnings growth
include construction first of all, but also durable goods manufacturing, employment
services (temporary employment agencies), health services, public administration, social
services, transportation and utilities, and wholesale trade. Workers employed in industries
such as apparel and textile manufacturing, hotels, personal services (dry cleaning service),
and restaurants and bars have far less opportunity to improve their earnings over time. 27
38 Political Economy Research Institute • Center for American Progress I T he Economic Benefits • •• '.r- r.i m «■> - !•.:.» '
336
What about job advancement opportunities in fossil fuel industries? In the final row
of Table 10 we provide data comparing the clean-energy and fossil fuel investments
in terms of the numbers of low-credentialed jobs they create with decent longer-term
employment opportunities. The difference is particularly sharp. Clean-energy invest-
ments create 4.8 jobs per $1 million in spending while fossil fuel investments produce
only 0.7 jobs. This is in the job category that is likely to be most crucial for generating
decent new employment opportunities for low-income people through clean-energy
investments under the economic stimulus program and American Clean Energy and
Security Act now before Congress.
The overall message is that clean-energy investments offer a more favorable result for
working people in the United States according to any criteria. There are more jobs created
across the board — twice as many high-paying jobs and nearly four times more low-creden-
tialed and low-paying jobs.
39 Political Economy Research Institute • Center for American Progress | The Economic Benefits of Investing in Clean Energy
337
Forecasting the impact of a
carbon cap on economic growth
The impact of the environmental regulations in ACESA, in particular the new cap-and-
trade system, will produce higher prices over time for anyone using oil, coal, and natural
gas. How much higher and how fast these prices will rise is uncertain.
Nor can we know in advance how much any increases in fossil fuel prices will affect the
economy's overall performance over time. Offsetting savings from lower-cost, clean-
energy and efficiency measures will, at worst, take much of the sting out of the price
increases and at best reduce overall costs. Furthermore, increased U.S. competitiveness in
growing clean-energy industries as conventional fossil fuels become less important will
also improve U.S. economic conditions.
Taking all of these and related considerations into account, it is crucial to try to reach an
overall assessment as to how the rise in fossil fuel prices will affect the economy’s growth
trajectory. This is true even though — as discussed above — the standard long-term growth
forecasting models are fraught with serious pitfalls. It is nevertheless important to try to
extract as much useful information as possible from these models.
The basic question that these models attempt to answer is: how much would a given energy
price increase affect GDP growth? All the forecasts agree that this first depends on how large
the price increases will be. It then also depends on the “elasticities” — how much the demand
for a given source of energy would fall as the price of that energy source rises. For example,
how much purchasing gasoline at the pump would fall when the price of gasoline rises.
The forecasting models that are calibrated to the Department of Energy's most recent
(2009) Annual Energy Outlook predict that price increases that would be associated with
a carbon cap such as that proposed within the ACESA will range from roughly 10 percent
for gasoline to 20 percent for electricity and 29 percent for natural gas.
The Department of Energy model, however, also allows for increases in energy efficiency
as well as rising consumption of clean-energy sources in response to the rise of fossil fuel
prices. So even if gasoline prices are assumed to rise by 10 percent in a forecasting model,
the amount of money people will spend on gasoline will not also rise by 10 percent but by
something less. This is partly because people will respond to the 10-percent price increase by
conserving on energy or shifting to clean-energy sources, where prices will tend to be falling
due to technological advances. With all this in mind, lets examine several different forecasts.
40 Political Economy Research Institute • Center for American Progress j : •hh-.m- i -• s ' 1 '
338
Long-run GDP growth forecasts
The general approach with these exercises is to generate two long-term growth projections.
The first is a baseline case in which the economy is operating without a carbon cap over
the time period in question. The second is a projection in which a carbon cap-and-trade
system has been in operation during the relevant time period.
Most of these forecasts are responding to the carbon cap proposal debated last year in
Congress, which was the so-called Lieberman-Warner bill, named after its co-sponsors
Sens. Joseph Lieberman (l-CT) and (the now retired) John Warner (R-VA). Because
the cap-and-trade component of ACESA is similar to that of Lieberman-Warner, these
previous forecasting exercises remain useful in assessing the effects of this more recent
cap-and-trade proposal.
In addition, the Environmental Protection Agency recently produced two long-term
forecasts of the effects on economic growth of the ACESA carbon cap proposal. We
compare these most recent forecasts with those generated in response to Lieberman-
Warner in Table 1 1 . 2>
In considering first the forecasts of Lieberman-Warner in the upper panel of Table 1 1,
one central finding stands out above all: According to all the forecasts — including the
worst-case scenario developed by the most pessimistic forecasters, the American Council
TABLE 11
Comparison of alternative U.S. GDP growth forecasts under baseline scenario and with cap and trade
figures are average annual growth rate forecasts for specified time periods
1) Baseline GDP forecast
2) GDP forecast under Lieberman-
Warner cap and trade
3) Difference between baseline and
cap-and-trade growth forecasts
(columns 1-2)
A) Forecasts based on Lieberman-Warner cap and trade
MIT (200S to 2050)
2.94%
2.93%
0.01%
Energy Information Administration (2005 to 20301
2.47%
2.45%
0.02%
Clean Air Task Force (2005 to 2030)
2.89%
2.86%
0.03%
Environmental Protection Agency (2005 to 2050)
2.78%
2.72%
0.06%
ACCF/NAM— “High Cost Case" (2007 to 2030)
2.56%
2.45%
0.11%
8) Forecasts based on ACESA cap-and-trade
EPA-1 (ADAGE model— 2015-50)
2.41%
2.36%
0.05%
EPA-2 (IGEM model-201 S-S0)
2.35%
2.30%
2.0$%
Rttoffttes i- . -.ivjtt i'C m 4i if -ici cm C«ot») Clmate C range "U'S^hn (torn MoafSnq Ansywi o* me Uetemw* w*ne< Secuniy *o(S?Wl (May J008) ■>" hno /A*wn» c I *>j!t
e-: rot c-i oart’. «rl C-v. xocmenui Pmecuon Agency fAt Aww, An&finoftts 0>«uivon Oofr (Aom 10 1009i »vaw» .« so» gov/r-«'i««Aa'.5c/occ''0'> : v nch •
WM-Ana!ysi4.pt)i.
41 Political Economy Research Institute • Center for American Progress j the Economic Benefit-; of investing >r* dean Energy
339
on Capital Formation/Nationai Association of Manufacturers — the impact of a cap-and-
trade system on U.S. GDP growth will be negligible. According to most forecasts, it will be
almost indiscernible.
Hie differences in the forecasts of long-term average annual GDP growth range between
0.01 percent using the model developed by the Massachusetts Institute of Technology and
0.1 1 percent using the ACCF/NAM model. Even with the most pessimistic ACCF/NAM
model, the impact of the carbon cap on economic growth amounts to a difference in
average growth of between 2.6 percent per year when no carbon cap is in place versus 2.5
percent with a carbon cap in operation. Even assuming this most severe negative effect of a
carbon cap on economic growth, it would still only require, over the course of 23 years, an
additional 14 months for the U.S. economy to reach the same level of GDP under a carbon
cap as against the baseline scenario.
The lower panel of Table 1 1 shows two separate forecasts from EPA based on ACESA
specifically. The main difference between these forecasts and those for Lieberman-Warner
is the general shifting downward of growth projections. Thus in the top panel of the table,
the EPAs own forecasts with reference to the Lieberman-Warner proposal had ranged
between 2.78 percent average annual growth under their baseline case versus 2.72 percent
under a carbon cap — a difference of only 0.06 percent in average annual growth.
EPA’s two forecasts both estimate a significant drop in the baseline growth rate, with the
two forecasts at 2.35 percent and 2.41 percent. But these two forecasts also show a slightly
smaller impact of the carbon cap itself relative to the baseline, with the growth decline due
to the carbon cap now forecasted at 0.05 percent relative to the baseline.
Overall, then, these most recent EPA forecasts of the ACESA’s impact on economic
growth affirm the earlier conclusions of the forecasts derived from Lieberman-Warner —
that a carbon cap will have no significant effect on the U.S. economy’s long-term growth
trajectory. These forecasts may all be wrong, but it is still notable that this is the overarch-
ing conclusion that emerges from these modeling exercises, without exception.
This basic finding is even more notable given that these models all leave out significant
considerations that would tend to encourage the long-term growth rate to rise. These basic
considerations include:
• The positive effects of higher employment.
* The benefits of a higher level of domestic content and thus a reduced trade deficit.
♦ The possibilities for major technological breakthroughs.
• The economic benefits of reducing greenhouse gas emissions.
Let’s consider in turn each of these possible beneficial results that could derive from a
Si 50 hillion annual clean-energy investment program.
42 Political Economy Research Institute • Center for American Progress | 'he Economic Benefits of investin'? m Clean C neruv
340
Benefits of higher employment
The forecasting models we are considering here — like many macroeconomic models
developed over the past 20 years — assume that the economy is always operating at full
employment, 29 These models do allow for people to make choices between working and
leisure activities, but ail within the framework of a full- employment economy.
This means that if people are out of work, it is because they have voluntarily chosen leisure
over having a job. Thus, by assumption within these models, no benefits can result from an
expansion of employment opportunities — no matter what is the source of this employ-
ment expansion. This is because, according to these models, everyone who wants lobe
employed is in fact always employed.
In contrast, we have shown that clean-energy investments will generate an expansion of
job opportunities through direct plus indirect employment-creation channels. Because
we do not assume that the economy operates at full employment, this expansion of job
opportunities through the clean-energy investment agenda will produce a net increase of
employment throughout the economy. More people will have jobs as well as additional
money to spend.
When these newly employed workers increase their level of spending, this in turn creates
more jobs through the induced-employment elfect. The consequent fall in the unemploy-
ment rate should, in turn, encourage rising wages throughout the economy, which should
expand overall market demand in the economy still further. Through this combination of
channels that lead to lower unemployment, clean-energy investments will be supportive
of a higher overall rate of economic growth.
Clean-energv investment's and the trade deficit
The persistent gap between the total amount of imports wc purchase and the exports we
sell abroad now amounts to roughly 6 percent of U.S. GDP. This trade deficit is being
financed by foreigners piling up their holdings of dollar assets. This in turn has become a
major factor contributing to the instability of U.S. and global financial markets.
Clean-energy investments will almost certainly advance in conjunction with a decline in
fossil fuel consumption, which in turn will lead to a reduction in the huge levels of spend-
ing the United States now devotes to oil imports. As of 2007, the last year before the onset
of the financial crisis and recession, oil imports amounted to about $300 billioo per year,
or roughly half of total U.S. spending on fossil fuels. This level of spending on oil imports
also accounted for 36 percent of the total U.S. trade deficit of $819 billion as of 2007.
Overall, then, the net effects of clean-energy investments on the U.S. balance of trade will
certainly be favorable. How soon, and to what degree, these positive effects on the U.S.
43 Political Economy Research Institute • Center for American Progress | The Economic Benefits of investing in Clean Enetqy
341
trade balance will emerge will depend on how quickly clean-energy elements of the eco-
nomic stimulus package and the entirety of ACESA encourage clean-energy development
and displace high-carbon fuels as an energy source.
Reducing the U.S. trade deficit through cutting oil imports means, by definition, a higher
proportion of spending by U.S, households, businesses, and governments will happen
within the domestic US. economy. This promotes faster U.S. GDP growth. Moreover,
reducing the trade deficit will, in turn, cnntribute toward a more stable value of the dollar
in international currency markets, and thereby facilitate the management of U.S. monetary
policy. This should also contribute toward a faster rate of U.S. GDP growth. To achieve
these benefits of a smaller trade deficit, moreover, will not require that the deficit be
dosed entirely and right away. The fact that the deficit is diminishing steadily over time
will itself generate incremental benefits to the U.S. ecooomy.
Furthermore, the introduction of ever-increasing quantities of clean energy and energy
efficiency helps lower costs and decrease price volatility in the economy overall by diversi-
fying the U.S. energy mix and redudng our susceptibility to volatile price fluctuations for
primary fossil fuel commodities.
Incorporating the effects of technological change
EPA and related models build in assumptions as to how technological changes will affect
energy prices over time. It is impossible to know how quickly the prices of, say, cellulosic
biomass, wind, and solar energy will decline with time as technologies advance. But if
the United States continues to increase its commitment to advancing these technologies
through measures contained in ARRA and ACESA, then the opportunities will increase
and renewable energy prices could fall faster than these models are forecasting.
Once government policies help create a supportive environment for introducing and
commercializing new renewable energy technologies, this should accelerate the invest-
ment market for these clean sources of energy. An expanding market also then will raise
the likelihood for larger jumps in technological change beyond the incremental pace of
improvement built into standard long-term GDP forecasting models.
The potential for underestimating the effects of technological change is increased further
because these models assume that households and businesses operate with full knowledge
of how the economy will operate over time; the models assume "perfect foresight" on
the part of households and businesses. Indeed, the models assume not only that we can
accurately know the trajectory of technological change io the energy industry but also
how households and businesses will react to these changes.
44 Political Economy Research institute • Center for American Progress j ~!‘-e Economic Benefits o' i-'ws! t • k\:o i-mruy
342
These models therefore leave aside by assumption the real possibility that energy technologies
will improve quickly and produce a stronger positive expansion in employment than house-
holds or businesses operating in the models with “perfect foresight” could have anticipated.
Overall, then, we again see how changes in the policy environment as well as a rising level
of public commitment to building a dean-energy economy can themselves generate posi-
tive pressures for an accelerated rate of technological improvements. These improvements,
in turn, could contribute to a faster rate of GDP growth than the forecasting models are
anticipating. The pace at which businesses and households invest in these efficiencies will
depend on the success of ARRA and ACESA.
Benefits of lower carbon emissions
The main purpose of the forecasting models we have discussed above is to estimate the
future costs of a carbon cap. But these models do not attempt to estimate any potential
economic benefits accruing from the carbon cap or related policy interventions, in fact, it
is difficult to quantify the economic benefits of insuring against climate change, even while
wc know that such benefits are potentially enormous.
Most climate scientists hold that global warming is contributing throughout the world
to extreme weather patterns, a rising sea level, and significant shifts in many ecosystems.
These patterns will intensify as long as we fail to limit carbon emissions.
Disruptions of normal economic activities will increase correspondingly. Economic
welfare will decline as a result. This is certainly true in terms of an increase in environmen-
tal "bads,” many of which — such as a rising sea level and destroying natural habitats for
species — are not captured through traditional GDP statistics. But some of these negative
effects are incorporated in GDP. One case in point is that costs of hurricane damages are
included as part of GDP. Also included in GDP will be the costs that are already emerging
(and will worsen over time) of managing water systems in arid Western states as droughts
become more frequent and severe. 59
Of course, the most important consideration here is to recognize the overall welfare
costs, and especially the real dangers of an irreversible environmental crisis that could
result throngh allowing carbon emissions to cuntinue unchecked. These considerations
transcend the issue of whether such costs and risks are captured within our conven-
tional GDP statistics.
Still, considering models that attempt only to forecast future GDP, leaving broader
welfare considerations outside the model, the benefits of controlling carbon emissions
will be measureable and significant. Neglecting all such benefits means that future GDP
forecasts — the baseline forecasts as well as those that allow for a carbon cap mandate —
are likely to be understated.
45 Political Economy Research Institute • Center for American Progress | The Economic Benefits of investing in Oeqn Energy
343
Conclusion
The United States needs to promote an aggressive policy agenda now to defeat global
warming. This fact is now widely if not universally recognized. The overarching challenge
before us is therefore to determine a policy path that is effective in building a clean-energy
economy as rapidly as possible and in promoting widespread employment opportunities
and broadly shared well-being. The current severe recession has only intensified the need
to pursue such a unified program that can both promote job creation and build a clean-
energy economy.
The recently enacted American Recovery and Reinvestment Act and the proposed
American Clean Energy and Security Act that Congress is now considering are both
federal policy initiatives aimed at creating a clean-energy foundation for the U.S. economy.
The two measures are distinct. The ARRA is a $787 billion spending program designed
to counteract the recession, which includes clean-energy components as one tool among
several others to stimulate job creation and economic growth. These components include
both direct federal spending provisions as well as subsidies for private investors.
In contrast, ACESA will operate primarily by establishing regulations and incentives for
private businesses to encourage energy efficiency and investments in renewable energy, and
correspondingly discourage continued reliance on high-carbon energy sources. Among its
main provisions are a carbon cap-and-trade program that would be phased in through 20S0,
and a renewable energy electricity standard that would be phased in through 2020.
The specific features of ARRA and ACESA complement each other. In this paper we have
demonstrated how the two measures work in combination to advance clean-energy invest-
ments and the transition to a clean-energy economy. Specifically, we examined the effect
these two measures are likely to have on job creation and economic growth. We conclude
that these two measures operating effectively as a complementary set of policy initiatives,
in conjunction with related initiatives both at the state and local government level and
especially by private investors, could produce over the next decade about $150 billion a
year in clean-energy investments that also expand job opportunities. The net expansion in
employment through this combination of initiatives could be about 1.7 million jobs.
This $150 billion a year includes public spending and private investments. Within the
private sector, it would include projects that are both supported by government subsidies
46 Political Economy Research institute - Center for American Progress | •; • \ muc Reno'e-. c/h-.v: si >v :V;»i ^;. (v
344
of some sort as well as unsubsidized investments. We anticipate that the largest share of an
overall $150 billion annual spending level would be unsubsidized private investments that
are nevertheless encouraged by the expansion of markets aud opportunities encouraged
by ARRA and ACESA.
Our central finding on employment growth is that a combination of clean-energy invest-
ments — including building retrofits, public transportation, and constructing a smart grid,
as well as promoting renewable energy sources such as wind, solar, and biomass power —
will generate roughly three times more jobs than an equivalent amount of money spent
on conventional fossil fuels. So if the United States proceeds with combined public- and
private-sector investments in clean energy amounting to $ 150 billion a year, this would
generate about 2.5 million jobs. In contrast, spending the same $150 billion within the
fossil fuel sector generates about 800,000 jobs. Therefore, the net impact — jobs gained
through expauding clean-energy investments by $150 billion minus jobs lost through
reducing spending on fossil fuels by the same amount — would be a net gain of 1.7 million
new jobs within the U.S. economy.
This expansion of job opportunities would occur strictly as a result of the shift in spend-
ing of a given $150 billion in favor of clean energy and away from fossil fuels. It will not
be necessary for U.S. GDP to grow more quickly in order for these positive job effects to
emerge through a clean-energy investment agenda.
Our overall conclusions are therefore that the clean-energy components of ARRA and
ACESA will have significant economic benefits aside from the contributions they will
make to reducing carbon emissions and combating global warming. The most important
and most clearly established economic benefit is that dean-energy investments will be a
substantial source of new employment opportunities throughout the United States.
Forecasting the impact of these measures on long-run economic growth is fraught with
difficulties. But it is still useful to highlight the fact that all the models that attempt such
forecasts find that any possible negative impacts of a carbon cap on economic growth will
be minimal. It is also important to recognize that these models reach this common conclu-
sion even though they do not take account of several channels through which the project
of building a clean-energy economy will promote a wide range of new job opportunities
and the broader expansion of well-being in the United States.
47 Political Economy Research Institute ■ Center for American Progress | The Economic Benefits of Investing in Clean Energy
345
Appendix 1: Technical methods
Environmental investment in the ARRA
Estimating the overall level of environmental spending
The American Recovery and Reinvestment Act of 2009 contains funding for a number of
environmental programs through various departments and agencies within the federal
government. Estimates of dean-energy spending in the ARRA vary widely— depending on
whether only funding through the Department of Energy is considered or whether a broader
approach is taken. We have pursued the latter.
Our estimate of approximately Si 00 billion in environmental spending is derived by identify-
ing and summing all of the programs in the ARRA which fall under the DOE. as well as any
program in other departments and agencies (such as the Department of Transportation, the
Environmental Protection Agency, the Department of Housing, the Treasury Department,
etc.) that contains funding for energy efficiency, renewable energy, public transit, high-
speed rail, and environmental management. Specifically, in addition to the DOF programs,
our $100 billion estimate of environmental investments contains the following programs:
Government:
Outdoors:
Military:
Veterans:
Transportation:
Housing:
Tax provisions:
Building retrofits and efficient fleet procurement
Conservation, national parks, environmental cle3n-up and
wildfire management
Defense energy conservation projects
Energy efficiency in buildings
Amtrak, high speed rail, and public transit improvements
Energy efficiency on Indian lands, and energy efficiency and renewable
energy for low-income housing
All tax incentives related to energy efficiency and renewable energy
Financial mechanisms for allocating federal funds
The roughly $100 billion of environment investments identified above are allocated accord-
ing to various financial mechanisms. These include direct spending by the federal govern-
ment (for efficient fleet procurement, for example), as well as grants, loan guarantees, bonds,
48 Political Economy Research Institute • Center for American Progress | l hr i rmnn.i; Bench's of ir-vosi in Clean i'onrgy
346
and tax incentives. Each of these mechanisms, in turn, targets certain populations {local
governments, private investors) and will induce additional spending by those populations.
In order to obtain a rough estimate of the level of funds likely to be spent by these entities
in addition to the federal funds, we first identified the funding mechanism within the text of
the ARRA. We then used a variety of websites {see below) to ascertain whether there were
matching requirements or estimates of leveraged funds through the ARRA programs. For
example, residential renewable energy property is eligible for a 30 percent tax credit. Thus
forihe total cost of the project, the federal government will pay 30 percent and the private
investor will pay 70 percent, or 2.33 times the value of the federal funds. Therefore this credit,
which amounts to S268 million of federal funding, will raise an additional $625 million in
private funding for a total of $893 million economy-wide.
in order to ascertain the types of programs and the level of matching required, we consulted
documents provided to us by the Department of Energy as well as the following sites;
www.grants.gov Edocket.access.gpo.gov
www.dsireusa.org www.epa.gov
www.staterecovery.org www.fra.dot.gov
www.treasury.gov/recovery www.recovery.gov
www.irs.gov www.cbo.gov
www.fms.treas.gov www.ustreas.gov/recovery
www.dot.gov/recovery
Assessment of new investment in electricity generation capacity to meet the
revised 15-percent renewable energy standard in the ACESA
We base our analysis on two recent publications from the Energy Information Administration
(U.S. Department of Energy): Annual Energy Outlook 2009 (AEO 2009) and Assumptions to the
Annual Energy Outlook 2009. At the time of this writing, the ACESA would require that 15
percent of electricity generation would come from renewable sources by 2020. We use the
projections of future electricity generation contained in AEO 2009, based on the Department
of Energy's National Energy Modeling System, or NEMS. as the basis for our estimates of the
dollar value of investments needed to comply with these standards.
According to the AEO 2009, electricity generation will total 4,618 billion kilowatt hours, or
kwhs in 2020. If electricity generation from renewable sources were to meet the ACESA stan-
dard in 2020. 692 kwhs would have to come from renewable sources. We need to convert
this amount of electricity generation into a measurement of capacity needed. Based on the
estimates in AEO 2009, we estimate that on average across renewable sources of electric-
ity, 0.2 gigawatts in capacity {net summer capacity) is associated with every 1 billion kwhs
in generation. We use this ratio to calculate the shortfall in renewable capacity. Using this
49 Political Economy Research Institute ■ Center for American Progress j The Economic Benefits of investing in Clean Energy
347
assumption, about 1 53.8 gigawatts in renewable capacity would be needed to generate
692 kwhs of electricity. According to AEO 2009, in 2007 renewable generation capacity was
1 00.8 gigawatts, Therefore, we would need an additional 53 gigawatts in renewable capacity
to meet the 1 5-percent standard by 2020.
The publication Assumptions to the Annual Energy Outlook 2009 provides estimates of the
overnight capital cost of different sources of electricity generation. Using the actual com-
position of renewable energy from various sources contained in the AEO 2009, we calculate
that a weighted average of the cost of capital would be $2,750 in 2007 dollars per kilowatt
of capacity. For the purposes of our estimations we round this up to $2,800 per kilowatt of
capacity. This means that the total additional investment needed to reach the 15-percent
standard would be about $148 billion by 2020.
If the U.S. economy were able to achieve a goal of 20 percent renewable electricity by
2020, we estimate that the total capacity needed at that time would be 205 gigawatts —
or an increase of 104.2 gigawatts over the 2007 level. This would require about $292 bil-
lion in investment.
Employment estimates
employment multipliers
Data and methodology The employment estimates in this report are derived from an
input-output model. The Input-output model allows us to observe relationships between
different industries in the production of goods and services. We can also observe relation-
ships between consumers of goods and services, including households and governments,
and the various producing industries. For our purposes specifically, the input-output model-
ing approach enables us to estimate the effects on employment resulting from an increase
in final demand for the products of a given industry. For example, we can estimate the
number of jobs directly created in the construction industry for each $ 1 million of spending
on construction. We can also estimate the jobs that are indirectly created in other industries
through the $ 1 million in spending on construction— industries such as lumber and hard-
ware, Overall, the input-output model allows us to estimate the economy-wide employment
results from a given level of spending.
For this report, we used the IMPLAN 2.0 software and IMPIAN 2007 data set constructed by
the Minnesota IMPIAN Group, Inc. This data provides 440-industry level detail and is based
on the Bureau of Economic Analysis input-output tables.
Using IMPLAN to estimate ditect and indirect effects in energy industries
To perform the kind of employment analysis featured in this report we needed to match
the various energy spending categories with the industrial categories in the IMPLAN data
set in order to calculate employment multipliers. IMPLAN's data is based on the Bureau of
50 Political Economy Research institute • Center for American Progress | Cu>n.«»k R~;v :V >rv, , :<• loan s v:,r.)v
348
Economic Analysis input-output tables. The BEA, in turn, organizes industries according to
the North American Industrial Classification System, or NAlCS.This system unfortunately
does not identify energy industries as such. While certain industries such as oil and gas
extraction or coal mining are identified in the tables, others such as wind and solar are
not. Furthermore, the oil and gas industry does not consist solely of extraction but also of
research, manufacturing, and distribution. Therefore for both identified and unidentified
energy industries we must make certain assumptions in using the input-output tables to
study output and employment.
For each energy strategy, we identified the industries most relevant to the strategy and
assigned weights for the share of that industry within the energy strategy. These weights
were chosen based on various industry journals and energy reports, as weli as our best judg-
ment when information was unavailable. So, for example, we defined the coal industry as
44 percent coal extraction, 8 percent support activities for coal mining, and 48 percent coal
products manufacturing. In this way we were able to use weighted averages of the figures in
the output and employment tables to generate estimates of output and employment in the
coal industry, given a certain level of demand for that industry's product. In order to ensure
that our employment estimates for each energy strategy were not driven primarily by the
weights we assigned, we ran the model with various alternative weighting schemes and
found that the results were in fact quite robust and varied only slightly even when weights
changed quite drastically. The final weights that we selected for each energy strategy are
listed at the end of this section.
In order to be able to compare employment estimates between various energy strategies,
we needed a common metric to use as a basis for comparison. We chose to compare job
estimates in relation to a given amount of spending rather than a given amount of energy
production. So for instance we compare the employment estimates in solar energy ver-
sus coal by showing how the same level of spending in each category results in a certain
number of jobs. The alternative, which is to show how many jobs are supported by a given
level of energy production, would produce inflated estimates in industries with high energy
costs. If we had used a given level of BTUs as the basis for comparison, then the number of
jobs needed to produce a given level of BTUs in solar would be very high compared to the
number of jobs needed to produce that level of energy production through coal. This would
have simply been due to the fact that the cost per BTU for solar power is still much higher
than the cost per BTU of coal. Therefore we chose to compare the number of jobs created by
a given level of spending, which is not sensitive to the current prices of these various energy
sources and technologies.
51 Political Economy Research Institute • Centerfor American Progress | The Economic Benefits of Investing ir» Clean Energy
Biomass
25 percent
grain farming
Solar
25 percent
logging
30 percent
construction
25 percent
other new construction
17.5 percent
hardware manufacturing
12.5 percent
refining
17.5 percent
electrical equipment
12.5 percent
scientific R&O
17.5 percent
electronic components
17.5 percent
scientific and technical services
Building weatherization
50 percent
nonresidential repair construction
Transit and rail
50 percent
residential repair construction
45 percent
other construction
10 percent
rail transportation
Coal
45 percent
ground passenger transportation
44 percent
coal mining
08 percent
support activities for coal mining
Wind
48 percent
coal product manufacturing
26 percent
construction
12 percent
plastic products
Oil and gas
1 2 percent
fabricated metal
23 percent
oil and gas extraction
37 percent
machinery
07 percent
drilling oil and gas wells
03 percent
mechanical power transmission equipment
04 percent
support activities for oil and gas extraction
03 percent
electronic components
10 percent
natural gas distribution
07 percent
scientific and technical services
45 percent
petroleum refineries
08 percent
petroleum product manufacturing
"Green program"
03 percent
pipeline transport
40 percent
building weatherization
20 percent
transit and rail
Smart grid
10 percent
smart grid
25 percent
construction
10 percent
wind
25 percent
machinery
10 percent
solar
25 percent
electronic equipment
10 percent
biomass
12.5 percent
electrical power goods
12.5 percent
storage batteries
Induced effect;
Induced effects refer to the additional employment, output, and value added that is produced
when the additional employment income generated by an initial demand stimulus - as captured
by the direct and indirect effects — is spent. The magnitude of the induced effects depends on
how the additional employment income translates into household expenditures and the size of
the multiplier effects associated with the increase in household spending.
Induced effects are often estimated by endogenizing the household sector in the input-
output model. The assumption is that increases in employee compensation {or value added)
finance greater household spending, as reflected in the vector of household consumption
52 Political Economy Research Institute • Center for American Progress | f; omum ■ h- ■■■* L'-emx
350
in overall final demand. The endogenous household model often yields very large induced
effects, in part because the propensity to consume out of employee compensation (or value
added) implicit in the endogenous household input-output model is large.
instead of relying on the consumption function that is implicit in the input-output accounts,
we estimate the relationship between real gross employee compensation and real personal
consumption expenditures econometrically using a dynamic empirical model. This gives us
a more accurate sense of how household consumption responds to changes in employee
compensation. We then integrate this estimated relationship into our basic input-output
model to calculate induced effects.
The first step of the process is to estimate the relationship between personal consumption
expenditures and employee compensation. To do this, we begin with the following dynamic
empirical model:
C t = a + p,C H + + P 5 C |} + yE, + p,
In the above equation, C, represents real personal consumption expenditures in time period “t,"
E represents real employee compensation, and p, is a stochastic error term. We are interested
in how changes in employee compensation affect changes in personal consumption expendi-
tures. Therefore, we estimate the model in first differences. First differencing alsn insures that the
variables are stationary (based on augmented Dickey-Fuller unit root tests).The GDP-deflator
for personal consumption expenditures is used to transform nominal values into real variables.
The time series is quarterly, and extends from 1950 to 2007. All data comes from the Bureau of
Economic Analysis, U.S. Department of Commerce.
The estimated model is (rounding off the coefficients):
C, = 7.83 + 0.1 0 C , + 0.20 C l0 + 0.21 C,., + 0.30 E,
(3.2) (1.7) (3.5) (3.6) (5.9)
T-values are reported in parentheses. From this model, we can calculate the impact of a
change In employee compensation on personal consumption expenditures, taking into
account the dynamic feedback effects captured by the lag endogenous variables:
1 - =0.6132
I-(P, + P ? + P,) 1-0.5186
This implies that a $1 million increase in gross employee compensation will be associated
with a $613,200 increase in household consumption.
Next, we need to estimate the feedback effects— that is, the impact of the increase in house-
hold consumption on employee compensation. Additional household consumption expendi-
tures will increase the vector of final demand in the input-output model and, through direct
and indirect employment effects, raise employee compensation.
53 Political Economy Research Institute * Center for American Progress j The Economic Benefits of Investing in Clean Energy
351
Using our input-out mode! and restricting the estimates to direct and indirect effects only,
we find that a Si increase in household final demand is associated with an increase in
employee compensation of $0,416.”
We can now estimate the number of jobs that would be created for each additional $1 million
in employee compensation generated by the direct and indirect effects of any particular final
demand stimulus. First, we calculate the total impact on household consumption of a
$1 increase in employee compensation. This would be given by the following expression:
Total impact on HH consumption = x + x^y + x'y v + x*y 5 +
in which Vis the estimated propensity to consume out of additional employee compensa-
tion {0.6132 according to our estimates described above) and "y“ is the additional employee
compensation generated by a Si increase in final household demand {0.416 from the basic
input-output model). We can factor out a single "x" giving us:
Total impact on HH consumption = x(1 + xy + (xy) ; + (xy) 3 + J
The expression in the brackets is an infinite series. Since xy<1, we know that the series
converges to:
Total impact on HH consumption = x/{l-xy).
Using our estimates, the total impact on household consumption expenditures of a
$1 increase in employee compensation is +$0.8232.
Finally, we use these estimates to calculate a general induced employment multiplier. From
the basic input-output model, we estimate that a $1 million change in final household
consumption would create 10.6 additional jobs. However, we are interested in the number
of jobs that would be generated by an additional $1 million in employee compensation. We
know that $1 in employee compensation will generate $0.8232 in induced household con-
sumption. Therefore, $1 million in additional employee compensation generates $823,200 in
new household expenditures and approximately 8.7 additional jobs (10.6 * 0.8232) when
all dynamic multiplier effects are taken into account.
We can apply this general analysis of induced effects to any specific stimulus. All we need
to know is the direct and indirect effects of the stimulus in terms of employee compensa-
tion. For each $1 million in additional employee compensation generated, we know that
8.7 additional jobs would be generated through induced effects. For example, an addi-
tional $10 million spent on building weatherization generates $5.42 million in additional
employee compensation through the direct and indirect effects, These direct and indirect
effects would generate about 127 new jobs. These numbers come directly from the
54 Political Economy Research Institute * Center for American Progress j The Economic. Benefits of invest;
352
basic input-output model. The induced job creation — taking into account all multiplier
effects — would amount to approximately 47 additional jobs (5.42*8.7) for a total employ-
ment impact of 174 jobs.
Characteristics of jobs generated by dean-energy investments
and fossii fuel investments
in this report we are concerned not only with the overall level of job creation, but also
with the types of occupations and the credentials needed by workers in these occupations.
Our basic strategy for identifying the types of jobs that would be added to the economy
due to an investment in the dean-energy or fossil fuel sectors (as defined above) involves
two steps. The first step is to calculate each industry's share of total employment created
through either an investment in clean energy or fossil fuels. We calculated the percentage
of new employment generated in each of the 440 sectors in our input-output model. These
industry shares take into account the direct, indirect, and induced effects as discussed
above. The second step is to combine this information on the industry composition of new
employment created by investing in each energy sector — clean energy or fossil fuels —
with data on workers currently employed in the industries. We use the characteristics of
these workers to determine the types of occupations (and the credential requirements of
these occupations) that will add jobs with an investment in each energy sector. Our data on
current workers comes from the 2008 Current Population Survey, or CPS, maintained by the
Bureau of Labor Statistics.
Specifically, we used the industry shares to weight the worker data in the CPS so that the
industry composition of the workers in the CPS sample matches the industry composition
of the new jobs that will be added by investing in the energy sector we are analyzing. We
do this by using the industry shares to adjust the CPS-provided sampling weights. The CPS-
provided sampling weights weight the survey sample so that it is nationally representative.
We use the industry shares to adjust these sampling weights so that the sample of work-
ers in the CPS is representative of the industrial mix of jobs that IMPLAN estimates will be
produced by new investments in clean energy or fossil fuels.
In order to create the weights we first aggregated the 440 industry shares to the three-digit
level NAICS industries (for a total of 69 industries). This allowed us to merge the industry
share data to the CPS worker data using the most detailed industry variable provided in the
CPS. So, for example, at the 440 sector level there are seven construction sectors while at the
three-digit NAICS level there Is one construction industry
We adjust the CPS-provided sampling weights by multiplying each individual worker's sam-
pling weight with the following:
55 Political Economy Research Institute ■ Center for American Progress j The Economic Benefits o? investing in Clean Energy
353
x IMPLAN's estimate of the share of new jobs in worker 's industry I
I (CPS sampling weights of all workers in industry I)
where 5 is a scalar equal to the number of jobs produced overall by the particular level and
type of investment being considered, and I represents a particular industrial sector.
We use these adjusted sampling weights to estimate the proportion of workers in each
energy sector that has 1 ) a high school degree and no college experience: 2) some college
but no bachelor's degree; and 3) a bachelor’s degree or more. We then assume that the same
proportion of jobs in each energy sector requires each level of education credentials. These
figures are presented in the main text in Table 10.
56 Political Economy Research Institute • Center for American Progress j 'the Economic Benefit
354
Appendix 2: The employment impact
of clean-energy investments across
individual states
We report here a state-by-state breakdown of the overall employment expansion that would
result through shifting $150 billion in overall spending out of the fossil fuel industry and into
clean-energy investments. Before reporting the figures themselves, we begin by discussing
the approach we have taken for allocating both the expansion in dean-energy investments
in each state and the corresponding decline in fossil fuel spending. Our estimates of the net
employment effects of the transition to a dean-energy economy are based on the amounts
by which dean-energy investments increase and fossil fuel spending decreases in each state.
The employment figures we report in the second part of this appendix are the result of both
of those calculations.
As described in the main text, we have derived the $ 1 SO billion level of economy-wide
dean-energy investment spending based on two criteria: 1 ) our assessment of the com-
bined impact on the l).S. economy of the American Recovery and Reinvestment Act and the
set of incentives and regulations included in the American Clean Energy and Security Act,
now being debated in Congress; and 2) developments that are likely to occur in the private
clean-energy investment market, driven primarily by advances in dean-energy technologies
and the maturation of the institutions and linkages serving this market. Of course, these two
broad sets of factors — the impact of government policies and advances in technologies and
market practices— are also closely interrelated.
To proceed with a state -by-state breakdown of this $ 1 50 billion in total dean-energy
investment spending throughout the U.S. economy, we first need to establish criteria for
estimating how the funds are likely to be distributed. And based on the worst-case scenario
assumption that we describe in the main text (page 33} that the total $150 billion in dean-
energy investments will be matched dollar-for-doliar by declines in fossil fuel spending, we
also need to establish criteria for distributing the decline in fossil fuel spending across the
states that will total to $1 50 billion, in fact, we conclude that the same approach is appropri-
ate for both distributing the gains in dean-energy investments and declines in fossil fuel
spending. That is, as we explain in detail, we generate both the dean-energy investment
increases and the fossil fuel spending declines as equally weighted averages of the level of
GDP and the level of population in each state.
57 Political Economy Research Institute • Center for American Progress | iiptv.-'its <>* in-. r ,>-n(! m Cleon ! ouov
355
Clean-energy investment increases
One way to allocate the flow of dean-energy investment funds would be to make a deter-
mination as to which states have advantages in various investment areas, such as soiar or
wind power, urban density for mass transit investments, or agriculture to produce targeted
advances in next-generation biofuels. But whatever funding assumptions we would estab-
lish from these criteria would inevitably be highly sensitive to our assumptions. That is, we
do not have an empirically rigorous way to balance the importance of these geographic or
climatic advantages for any given state or region relative to the economic resources avail-
able in other regions.
With this in mind, we considered two approaches to assigning investment levels for each
state based on two easily observable and measurable traits for each state: state gross
domestic product and population levels.
Distributing the total $150 billion in clean-energy investments on the basis of each state's share
of total GDP means assigning proportions of spending based on existing patterns of financial
investments and levels of development This provides an accurate measure of how dean energy
investments would flow if they followed current levels of economic development across the
states. Distributing the funds based on each state's population assumes a more egalitarian
approach, with each person in the country effectively receiving an equal dollar claim on the over-
all pool of investment funds. We then try to balance these two considerations, recognizing that
building retrofits, for example, will in part follows pattern based on population density, but that
new capital investment will also naturally flow toward areas of pre-existing capital investment in
industry, infrastructure, and building stock.
In our view, both a GDP-share and a population-based allocation of funds represent
reasonable criteria for estimating what state-level dean-energy investments should be.
This is because, regardless of a state's topography or climate, major opportunities for
dean-energy investments exist now and will grow with time. Accordingly, our approach
is to calculate what the allocation of new investment funds would be under both the GDP-
and population- based approaches, and use the midpoint of these two calculations as our
figure for each state's allocation of the total $150 billion in new dean-energy investments.
Fossil fuel spending declines
Similar issues arise in deciding an approach for estimating the distribution of declines in fos-
sil fuel spending across the states. One approach would be to distribute the cuts in propor-
tion to the existing levels of fossil fuel spending in each state. According to this standard,
oil-producing states such as Texas, Louisiana, and Oklahoma and coal-producing regions
such as the Appalachian region and Montana would experience larger overall spending
reductions than other states in which the fossil fuel industry plays a less significant role.
58 Political Economy Research Institute • Center for American Progress j >. '< 'Vu <n-- au a- . isv t m
356
Under this scenario, the costs of the transition from a fossil fuel to a clean-energy based
economy would therefore fall disproportionately on states that have large-scale fossil fuel
industries. But if we used this criterion for allocating the distribution of fossil fuel spending
declines, we would be contradicting a principle incorporated into the draft language of the
ACESA, which is to compensate people and communities tied to the fossil fuel industry as
one feature of the transition to a dean-energy economy.
Thus, to remain consistent with the policy approach incorporated into the ACESA, we follow
the same principle which we used for al 